Are client gifts tax deductible?

Are client gifts tax deductible

Are client gifts tax deductible?

Gifting your clients is a great way to show appreciation and build relationships. However, as a small business owner in the UK, you may be wondering if these gifts are tax deductible. In this blog post, we’ll cover the basics of client gift deductions and provide some tips on how to responsibly manage your expenses.

Are Client Gifts Tax Deductible?

By default client gifts are not allowable for tax purposes, and therefore client gifts are not typically tax deductible as a general rule.

However there are some exceptions to this rule. 
There are certain conditions that must be met in order for these gifts to qualify as tax deductible.

1) The gift is tax deductible if it is branded and provided that it costs less than £50 and is not part of a series of gifts to the same person that comes to more than £50 in that accounting period. Specifically not included in this rule are gifts of food, drink, tobacco or an exchangeable voucher - those are not allowable. 

2) A gift used to advertise to the public generally, for example, free samples. 

Additionally, gifts should not be given with the intention of obtaining special favours from clients or customers and should only serve as a token of appreciation rather than an incentive for future business.

VAT due on gifts

VAT is "charged" on gifts given away where the gift is in excess of £50, or there are a series of gifts adding up to more than £50. (Under £50 is outside the scope of a supply for VAT purposes). 

That means that if you have a gift you are giving which is over £50, then you are treated as if you have sold that item and charged VAT on it, therefore that VAT element gets included as VAT on sales in your VAT return, increasing your VAT due. 


Tips for Responsible Expense Management

It is important to keep track of all expenses related to client gifts so that you can claim them on your tax return. Here are some tips to help you keep track:

• Keep receipts for all purchases made for client gifts; this will help you dispute any discrepancies with HMRC if needed.

• Only give client gifts within reason; don’t overspend or give away expensive items just because they are tax deductible! Make sure you can afford the gifts as a business.

• Consider setting aside a separate budget solely dedicated to client gifting; this will help ensure that you stay within budget and don’t overspend during the year.

Gifting your clients is an excellent way to show appreciation and build relationships with important people in your network. Fortunately, sometimes these costs can be claimed as tax deductible business expenses on your tax return which can help reduce your taxes owed at the end of the year. Just remember to follow HMRC guidelines when giving out client gifts and consider setting aside a separate budget dedicated solely to client gifting so that you don’t overspend during the course of a year!

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.