The Tax Implications of Gifting

Christmas… it’s most certainly a time for giving.

We all love to give gifts, it’s what helps to make Christmas time so magical for everyone. But what exactly are the tax implications of giving gifts through your business?

Gifting, like entertainment, is generally a ‘no no’, although there are some occasions where you can provide a small thank you to clients and employees. We have the all important do’s and don’ts to ensure there are no tax implications for your business:

Giving Gifts to Your clients

Where the gift given incorporates an advertisement for the business, e.g. the business name or logo features, then the gift may be tax-deductible. For example, a branded drinks bottle, umbrella or diary for the following year would all be allowable.

BUT, if the gift consists of food, drink, tobacco, or any voucher that can be exchanged for goods, then that is not tax-deductible even if they feature business branding. There is also a further restriction in that the cost of the gift cannot exceed £50 per recipient.

However, allowances can be made where a company gifts of one of their products such as with a free sample, and if the item is given away during the ordinary course of that business to advertise to the public generally. For example, if the business is a micro-brewery, then it could make Christmas gifts of its products to the general public for promotional purposes and obtain a tax deduction for the cost of doing so.

Christmas donations to charities in lieu of gifts would also be tax deductible so are worth considering.

Giving Gifts to Your employees

As well as the allowances for staff entertainment which permit a provision for the staff Christmas party, you can provide small gifts for employees under HMRC’s ‘Trivial Benefits’ rules.

You don’t have to pay tax on a benefit for your employee if all the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher (vouchers in exchange for goods or services is fine)
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

These gifts are known as ‘trivial benefits’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

BUT, you will have to pay tax on any benefits that don’t meet all these criteria and also there is a limit for close companies, which includes the typical family-owned company of a £300 limit per tax year for gifts to a director and their family.