Business gifts what are the tax implications?

By:

Date: 28 June 2022

A woman receiving a business gift

We all love to receive gifts, but as the saying goes, giving is as good as receiving. That’s never truer than in the business world. Whether it’s to express gratitude to loyal customers or simply to wish your employees a happy holiday, a gift keeps your company in the forefront of their mind and boosts feelings of loyalty and affection. The question is, how do these important gestures play out in terms of tax – and how can you offer something meaningful without blowing your budget? Read on to find out!

Gifts for employees – what are the rules?

Offering employees a seasonal gift – or simply a present to welcome them to the company – is never in vain. But when the gift comes with a tax bill attached to it, the thoughtful gesture may not be quite so well received! Don’t worry though; in terms of taxation, the rules on gifts made to your employees are quite straightforward – as long as they fall within the limitations classed as ‘trivial benefits’.

Simply put, you can give your employees an unlimited number of gifts providing:

  • they are not cash or cash vouchers (gift vouchers which can’t be exchanged for cash are acceptable here)
  • they don’t form a part of their contract (employees don’t ‘earn’ them directly)
  • they’re not given as a reward (this means the gift can’t technically be used as an incentive to achieve a particular feat as part of their job)
  • they cost less than £50

Gifts that cost less than £50

Now you're familiar with the limitations on employee gifts, you might be wondering what gift could meet all of these criteria. The £50 limit means you need to be creative and thoughtful, but don’t worry just yet. There are plenty of practical, considerate gifts that are exempt from tax – and with a little creativity, can look much more expensive than they really are.

Buying in bulk often works out cheaper, so if you wanted something to give out to all your employees, you could consider purchasing a stash of engraved pens online. They look elegant and stylish, they avoid the minefield of taste preferences and allergies that come with food and drink gifts, and they can be fully customised. What’s more, they’re practical, too, meaning they’re more likely to be used. 

Gifts for clients

Things are slightly different when it comes to gifts for customers and clients. Again, there is a £50 limitation, but client gifts are not allowed to be alcohol, tobacco or food (or vouchers which can be exchanged for such things). What’s more, while employers can offer an unlimited number of gifts to their employees, when it comes to client gifts, there is a limit of £50 per tax year. That means even more creativity is required, to stay within the budget!

In addition, the gift must carry a conspicuous advertisement for your company – otherwise it risks being classified by HMRC as an entertainment expense. That’s why branded merchandise featuring your company’s logo works well as a tax-deductible gift that meets the criteria. What’s more, they are a great way of boosting brand awareness, but still fulfil all the goals of offering your valued customers a token gift.

Gifts that don’t offer an advertisement for your brand are more of a grey area. And, to make matters worse, if your gift costs just over £50 – let’s say you buy a customer a ticket to a show and it costs £55 – the whole cost of the gift is now taxable, not just the £5 that was over the £50 limit!

The world of business gifts can seem daunting, especially when it comes to making sure you’re within the rules dictated by HMRC. However, with a little bit of thought and creativity, you can stick within the rules and still show gratitude to your employees and clients – and reap the rewards afterwards!

Copyright 2022. Featured post made possible by The Finance Time UK.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.