EXPENSES - 23.11.2006

Tax-deductible Christmas gifts

Recap. Christmas is on the way and you’re currently deciding what to give your best customers as gifts. To help you decide it’s worth knowing exactly what the tax rules are on gifts; (1) giving away free samples of your products is 100% deductible, and; (2) gifts carrying a conspicuous advertisement for the business are tax-deductible, but only up to £50 per person.

Warning. Gifts of food, drink, tobacco and vouchers receive no tax deduction, even if less than £50.

VAT. There’s also the VAT position to consider. To reclaim the VAT you have been charged on gifts you buy, the total value of the gift to each client must be no more than £50 (i.e. £58.75 including VAT). If you exceed this limit then simply account for the output VAT as if it were a sale.

So the solution is to have a gift that costs the business no more than £50 per recipient, hence the traditional gifts of calendars, diaries, etc. The VATman will allow you to reclaim the VAT on tobacco and alcohol. So if you give away a set of fine Cuban cigars costing £40 plus VAT, you can recover the £7. But you couldn’t claim the £40 against profits.

Tip 1. You can give away those bottles of whisky and claim back the VAT on the purchase price with a clear conscience. But you should add the expense back to your net profits before calculating the Corporation Tax or income tax due.

Tip 2. The £50 limit applies to the total value of gifts made to one person in a year. So you could give away five £10 crystal glasses as long as they carry your name.

Tip 3. You don’t have to go to the expense of getting calendars specially produced or glasses/tankards engraved with your company logo, just get some stickers printed with the company details and apply them liberally. You applied them to the gift not just the wrapping didn’t you?