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Tax on Seasonal Gifts for Staff & Clients

Seasonal Gifts Tax Rules

It’s that time of year now for seasonal gifts for your business team members and clients. Are you aware there are tax reliefs you can use to reduce costs and when you are eligible to claim a tax deduction for the gifts? Special rules for VAT and direct taxes can be applied equally to seasonal gifts and those made at any other time of the year. Below we unwrap these tax deduction rules for you to enjoy.

Tax deductions for team gifts

Your business isn’t entitled to a tax deduction for the cost of gift unless it’s purpose is (wholly and exclusively) for a business’s trade. The cost of gifts to staff is tax deductible – considered a legitimate business expense. There’s no limit on the amount you can spend and obtain a tax deduction for if expenditure meets the business needs test.

The £50 tax efficient rule…

Business gifts that costs more than £50 including VAT and delivery count as a taxable perk for the employee. This means you pay Class 1A NI at 13.8% of cost, not just excess over £50. You won’t want your workers to have to pay tax on a gift, it defeats the object. If the gift is taxable and you meet the cost of this it significantly raises the cost.

  • A £60 gift would cost you minimum £85 considering tax/NI bill.
  • The best thing is, limit Christmas gifts to £50 per head to avoid tax and NI.
  • Gift vouchers are fine, cash is not (it’s taxable)

You can reclaim VAT paid on costs of staff gifts but account for VAT when you gift (unless gift is as exempt or zero-rated, e.g. food/non-alcoholic drink) if its value exceeds £50, or the total value of gifts to the same person within the previous year exceeds this. Keeping cost of gifts within £50 is the most tax (VAT) efficient option.

Tax deductions for client gifts

Your business isn’t entitled to tax deductions for the purchase of gifts regardless of cost/value, with one exception – cost of a gift with a conspicuous advertisement is tax deductible if less than £50 and if part of a series of gifts to the same person within the accounting period, it costs no more than £50 in total. However, this exception doesn’t apply to gifts of food, drink or tobacco.

The VAT position for gifts to clients/suppliers is identical to gifts to employees. Account for VAT if the gift alone, or series of gifts together, have a value of more than £50. General tax rules don’t permit a deduction for business gifts other than those to employees, unless they include a clear advertisement for the business. VAT on the cost of a gift is reclaimable but if the value is greater than £50 excluding VAT you must account to HMRC for VAT as if a sale.

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