Posted by Joy & Co Chartered Certified Accountants on 13th December 2013
‘Tis the season for giving and I’ve had a couple of calls asking about the tax implications of giving gifts to favourite customers. I therefore thought it would be useful to outline the rules for giving business gifts.
As a general rule business gifts are not an allowable expense for tax purposes and so you cannot offset the cost against your taxable profits. However there are exceptions that will allow you to show your appreciation to customers and suppliers in the most tax efficient way.
There is an exception for small gifts provided they carry a conspicuous advert for your business and cost no more than £50 per recipient for each accounting period. Typical gifts might include branded diaries, pens or computer mouse mats carrying your logo .
So imagine that, in this festive season, you decide to give all of your customers a 2014 desk diary to thank them for your business. If the diaries feature your business logo you will be able to claim a deduction for them when calculating your taxable profits. If however you just bought unbranded diaries and gave them away then no such deduction is possible.
It’s worth bearing in mind that the gift must not be food, drink or tobacco so bottles of wine with or without your logo as the label are a definite no-no tax wise.
“But what about gifts to charities?” I hear you ask. Well the rules are different here if the gift is something that you ordinarily manufacture or sell.
In such cases provided you are not entitled to any benefit as a result of the gift then its cost is deductible. If the donation does obtain such a benefit then, not only do you not get the tax write off, but the market value of the benefit is added to your trading profits. (May be this is why Santa uses elves and doesn’t shop online)
The same rule applies to registered community amateur sports clubs. So say you’re a car dealer and you feel like giving the local kiddies football team a new minibus for their away games. Be sure that the gift is out of the goodness of your heart rather than because you get to plaster your business’s name across their kit for free!
So there it is in a nutshell. It’s the season for giving so as well as giving generously, remember to give smartly.