Gifts to Clients
HMRC permits businesses to provide gifts to clients worth up to £50 per tax year, provided the following conditions are met:
- The gift must be business-related and cannot include alcohol, food, tobacco, or vouchers that could be exchanged for these items.
- The gift must clearly display an advertisement for your business, such as a logo or branding. Without this, the gift would be considered client entertainment, which is not tax-deductible.
- The £50 limit includes the cost of gift-wrapping, so be mindful of how much is spent on presentation. If the total cost exceeds the £50 limit, the entire gift will be disallowed for tax purposes.
If these conditions are not met, the gift is treated as client entertainment, and businesses cannot claim tax relief on such expenses.
'Small' Gifts from Third Parties
Employees may also receive gifts from third parties due to their work-related interactions. As long as these gifts do not exceed £250 in value, they are not taxable for the employee.
VAT on Entertainment
In general, VAT on client entertainment cannot be recovered. However, it can be reclaimed for staff entertainment. The term 'staff' for VAT purposes does not include partners, contractors, or former employees. Therefore, if these individuals are invited to a staff event, the costs must be apportioned for VAT purposes.
When entertainment is provided only for directors, partners, or sole traders, HMRC typically does not consider this to be for business purposes, meaning the VAT cannot be reclaimed. However, if these individuals attend a party alongside other staff members, VAT on the cost of their attendance can be reclaimed.