The Christmas period is the season of giving and many businesses typically use it as a chance to promote their business and reward their loyal customers and suppliers with various Christmas gifts which are typically food, wine and spirits and branded merchandise.
In this short article we look at Christmas Gifts from the business to customers and suppliers, when can you obtain tax relief on a Christmas gift and how we account for such items in the books.
Generally gifts to your customers and suppliers chiefly come under two headings in your accounts:
- Advertising and marketing
Gifts may take many forms:
- Free samples of your product.
- A gift that is not necessarily related to your sales but carries advertising/merchandising for your company. e.g. free pen, mug or mousemat.
- Seasonal styled gifts of food or drink (e.g. your own branded wine or plum pudding).
- Non-branded gifts such as champagne or a box of chocolates.
Tax on customer gifts
- Customer gifts with entertaining as the main purpose are never tax-deductible and VAT is recoverable in limited cases. By default, gifts are treated as entertaining though see below.
- Free samples of your products are generally accepted as advertising and promotion and the costs are tax deductible and VAT is recoverable
- Customer gifts costing less than £50 per person:
- VAT is recoverable subject to aggregate limits over a rolling 12 month period.
- Tax deductible as advertising if it carries your advert and is not food, drink, tobacco or exchangeable vouchers. This is subject to an aggregate limit over a single accounting period.
- Customer gifts costing more than £50 per person:
- VAT is either irrecoverable, or if recovered, an output VAT charge must be accounted for.
- Is unlikely to be accepted as tax deductible.
See also Trivial benefits for advice on gifts to staff