Are Business Gifts To Clients and Suppliers Tax Deductible?

TLDR: NO!

Sending gifts to clients is extremely common in the business world and you may have even sent some yourself at some point!

Are the business gifts you give to your clients tax deductible though? It could be a Christmas gift to all clients (or suppliers/sub-contractors) or a bunch of flowers to a specific client on their birthday, however, what many people don't realise is there are rules and potential tax implications around giving gifts to clients.

HMRC classes a gift as "something that is given to a person without receiving anything in exchange. It is offered voluntarily and without any expectation of a return" Pretty standard stuff and I think we can all agree with the HMRC description.

However, under Section 45 of the Income Tax Act 2005 gifts are to be treated in the same way as business entertainment*, in that they are not allowed as a deduction against profits. I can already hear you saying it "But I thought it would be fine as it has to do with my business". I know and I completely get it, but the HMRC rule on this is VERY clear.

This means, for tax purposes that any expenses claimed in the accounts for gifts will need adding back, which will increase your profits before you calculate your tax.

There is an exception though... Advertising! Before you get too excited though, there are some rules.

BIM45070 states that gifts, which contain a CONSPICOUS advertisement for the business are generally allowed. This means the item must have a clear advertisement of your business or brand and it must also appear on the item itself and not the packaging. Common examples you normally see of these sorts of items are pens, diaries and tote bags.

The gift is also not allowed to be food, drink, tobacco or a token/voucher and the total cost of the gift(s) per recipient can't be more than £50 in each tax year. Yes, this does mean no chocolates or bottles of wine!

So what if you want to give your client a gift anyway that doesn't fall into the exception and knowing it won't be an allowable tax deduction?

Go ahead! There are other perks to sending gifts even if you can't get a tax deduction from it. Generally, the reason you want to send a gift is to show your client you are thinking of them and you appreciate them, and tax doesn't change that fact.

Sending gifts can strengthen relations, it can help build your brand and sometimes it can even help you stand out from the crowd. Whatever your reasons though, tax should not be your only motivator.

Key takeaways:

• Gifts are not allowable for tax.

• The exception is a branded item advertising your business, where branding is on the item itself and not the packaging.

• Gifts that fall into the exception can not be food, alcohol, tobacco or vouchers.

• They are also not allowed to total more than £50 per recipient in each financial year.

• You may decide to give a gift anyway, despite not getting a tax deduction for the other benefits it could bring to client relations.

• Remember, when it comes to giving gifts to clients, it's not just the thought that counts; understanding the tax implications is equally important.
  

To help ensure your tax return filing is smooth and hassle-free, you can also read my blog post on allowable business expenses here: What business expenses can I claim?

*this will be a blog post of it's own soon!