Are There Tax Implications for Corporate Gifting in the UK?

Corporate gifting is a common business practice used to build relationships, reward employees, and show appreciation to clients and partners. However, businesses must be aware of the tax implications associated with corporate gifts in the UK. Whether a gift is tax-deductible, subject to VAT, or requires reporting to HMRC depends on the type of gift, its value, and the recipient. Understanding these rules can help businesses ensure compliance and maximise any available tax relief.

Are Corporate Gifts Tax-Deductible?

In general, corporate gifts are not considered an allowable business expense for tax purposes. However, there are exceptions that may enable businesses to claim tax relief:

Promotional Gifts: Gifts that carry a business’s name, logo, or branding may qualify as a deductible expense. For this exemption to apply, the gift must cost £50 or less per recipient per tax year and should not be food, drink, tobacco, or a voucher exchangeable for goods or services.

Gifts to Employees: Certain gifts to employees may be tax-deductible, especially if they fall under the trivial benefits exemption.

If a gift does not meet these criteria, it will likely be considered a business expense for entertaining purposes, which is not tax-deductible.

VAT Implications of Corporate Gifting

VAT treatment of corporate gifts depends on the nature of the gift:

VAT Recovery on Gift Purchases: If a business incurs VAT on purchasing gifts, it can typically reclaim the VAT, provided the gifts are given for business purposes.

Output VAT on Gifts: If a gift’s value exceeds £50 (excluding VAT) in a 12-month period to a single recipient, the business must account for output VAT as if it had sold the gift at market value. However, no output VAT is due if the total value of gifts to a single person does not exceed £50 per year.

Corporate Gifting to Employees

Employers often provide gifts to employees as incentives or rewards. The tax treatment of these gifts depends on the type and value of the gift:

Trivial Benefits: Gifts worth £50 or less per employee (including VAT) that are not given as a reward for work performance or contractual obligation are exempt from tax and National Insurance (NI). Examples include a bottle of wine, a box of chocolates, or a retail gift card (if not linked to performance).

Cash and Vouchers: If a gift is in the form of cash or a non-trivial voucher (one that can be exchanged for cash), it is subject to PAYE and NI as earnings.

Larger Gifts and Bonuses: Gifts that do not qualify as trivial benefits may be taxable and must be reported on a P11D form. Employers may also choose to cover the tax liability via a PAYE Settlement Agreement (PSA).

Corporate Gifting to Clients and Suppliers

Giving gifts to clients or suppliers is a traditional business practice, but there are limitations to tax relief:

Allowable Gifts: Branded promotional gifts worth up to £50 per recipient annually can be tax-deductible.

Non-Allowable Gifts: Gifts that do not meet HMRC’s criteria are treated as business entertainment and are not deductible for corporation tax purposes.

VAT Considerations: If the total value of gifts given to a recipient exceeds £50 in a tax year, output VAT must be accounted for.

How to Stay Compliant

To ensure compliance with HMRC regulations, businesses should:

Keep clear records of all gifts given, including recipient details and costs.

Ensure promotional gifts meet the criteria for tax deduction.

Account for VAT correctly on gifts above the £50 threshold.

Use a PSA to cover employee tax liabilities where appropriate.

Final Thought

Corporate gifting can strengthen business relationships, but it is essential to understand the associated tax implications. While some gifts qualify for tax relief and VAT recovery, others may be subject to output VAT or considered taxable benefits. By following HMRC guidelines and maintaining accurate records, businesses can manage corporate gifting in a tax-efficient and compliant manner.

Our blog posts are intended to be interesting and helpful, but do not constitute tax advice in any way.  Always seek professional guidance.