Have you considered VAT on Christmas gifts?

We’re well and truly in the midst of the Christmas shopping season and many of us now will have seen ‘that advert’ on TV, along with trying to make an early start on buying gifts for friends and family. As the festive season gets into full swing, most businesses will be working on a list of gifts for their employees and clients in order to build stronger relationships and to thank them for their hard work or custom throughout the year. However, as usual VAT and other taxes must be considered before you buy these gifts, otherwise you may receive a special ‘gift’ from HMRC.

The cost of making gifts is seen as Entertainment and therefore, under the general rule there is no tax relief given for these gifts. However, just like rest of the tax, there is also an exception to this general rule regarding Entertainment.

Gifts to employees

When an employer gifts something to their employee/s, it is deductible in their accounts.

VAT on the costs associated with the gifts to employees are recoverable. There is no maximum limit for VAT purposes.

Business samples or Advertisement gifts

A business is allowed to give samples to their customers and the related costs are deductible.

For direct tax purposes, a business can give a gift to its customer as long as it costs less than £50. The business will also need to make sure that it is not part of a series of gifts to the same person which all together come to more than £50 in that accounting period.

There is no direct tax relief available if the gift is food, alcohol or tobacco.

VAT on gifts to customers

  • A business is allowed to recover VAT on business gifts made to its customers, if the value of the gift does not exceed £50. However, this limit is applied on a rolling 12 months period. Therefore, if the value of the gifts provided to the same person in last 12 months exceeds £50, the business should account for output VAT on the value of the gifts. Another option is not to recover VAT on the gift cost and the business will not require to account for output VAT. Gifts for VAT purposes can include food, drink, tobacco or an exchangeable voucher.
  • The business does not need to account for VAT if the gift is a free sample of the business’s own product/s.

VAT isn’t always as simple as we would hope. We at Garbutt & Elliott will be more than happy to help you with any VAT queries you have. Please contact nsahney@garbutt-elliott.co.uk  for any VAT help.

Season’s Greetings!