Giving business gifts? Don’t forget the rules

We all like to give something back, whether it’s a Christmas hamper (oops, sorry… someone had to mention it!), a long-service award, or a thank you bottle of wine for a client. But, when it comes to gifts in business, HMRC has a few rules that are worth looking at.

An article featured in Tax Insider, written by Andrew Needham, looks at the recovery rates for business gifts and when VAT is charged.

We’ve broken down the key points:

1: Types of gifts

It’s not just about the Christmas hampers! HMRC’s rules on business gifts also apply to things like retirement gifts, competition prizes, and more.

2: the £50 rule

“To take advantage of these rules, the gifts must not be part of a series of gifts to the same person where the total cost of the goods in any 12-month period is more than £50, exclusive of VAT.”

This is one to remember. HMRC sets a £50 limit for business gifts. If the total value of gifts to any one person goes over that amount in a 12-month period, the VAT rules change.

Example: a pharmaceutical company gives away cases of wine worth £30 +VAT. Even with delivery added, the ‘cost’ of the goods is only £30, which is under the £50 threshold. This means the company can reclaim the VAT on the purchase and won’t need to pay VAT when the gifts are given out.

Note: Unlike corporation tax, the gift doesn’t need to have your company logo or branding to qualify.

3. What happens if the gift costs more than £50?

If the gift is above the £50 limit, the business must account for VAT (i.e. it must pay HMRC the same amount of VAT it reclaimed).

But, instead of paying VAT back later to HMRC, a business can simply choose not to reclaim it in the first place.

4. Cashflow benefit

If there’s a gap between buying and giving the gifts, reclaiming VAT first can provide a temporary cashflow advantage before VAT becomes due.

5. Reclaiming past VAT

Businesses can claim back VAT on eligible gifts going back four years, provided they still have the invoices.

If the total is under £10,000, it can be adjusted on the next VAT return. Larger amounts require a disclosure to HMRC.

6. What about free services?

If you give away your own service for free, there’s usually no VAT due because there’s no supply.

But, if you buy a service and then pass it on for free, VAT rules differ. Sometimes you can reclaim input VAT, other times you can’t, depending on who the service was supplied to.

If you have any questions about the above, we’re here to help!

You can call is on 01872 267 267, email us contact@whyfield.co.uk, or message us via WhatsApp (0777 49 39 111) or our socials (@whyfield).

Information taken from ‘Recovering VAT on business gifts’ by Andrew Needham, published in Tax Insider Issue 234