Gifts to Clients

Gifts to clients

HMRC allows you to give a gift worth up to £50 to a client in each tax year with the following conditions:

• It must be business related; it cannot be alcoholic, food, tobacco or vouchers that can be exchanged for those things.
• The gift must also carry a clear advertisement for your business; otherwise it would be classed as client entertainment.
• The £50 budget includes the gift-wrapping, so go easy on the wrapping paper. If you go over the limit the whole gift will be disallowed and liable for tax.

If these conditions are not met the amount cannot be deducted from your profits when calculating corporation tax as the gift would be treated as client entertainment. HMRC do not allow businesses to claim tax relief for such costs.

'Small' gifts from third parties

It is worth noting that gifts can also often be received by your employees from third parties due to contact they may have had with throughout the year as a result of their employment. As long as such gifts do not exceed £250 in cost, it won't be taxable for the employee.

VAT

Generally, the VAT spent on client entertaining cannot be recovered, but it can be for staff entertainment. The definition of staff for VAT purposes does not include partners of existing staff, contractors or former employees of the business. Therefore if your party includes those guests, you will need to apportion the relevant costs appropriately for VAT.

Where entertainment is provided only for directors, partners or sole proprietors, HMRC do not accept that the VAT has been incurred for business purposes. However, where directors etc. attend parties along with other staff members, then the VAT on the cost of them attending can be reclaimed.