Preston Accountant: Alker Accounting on Business gifts
It is that time of year, when a decision may be made to make a business gift for a valuable client. The general rule is that there is no tax relief given on the cost of making business gifts, as by default they are treated as entertaining. However, there are a number of exceptions to this.
A person can give away:
- An item provided in its business in order to advertise to the public generally (e.g. a free sample).
- An item incorporating a conspicuous advertisement provided that it costs less than £50 and is not part of a series of gifts to the same person which come to more than £50 in that accounting period. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
- Where a business makes gifts in excess of £50 or makes a series of gifts to one person exceeding £50 it should account for output VAT on the value of the gifts.
- Output VAT does not need to be accounted for where a gift is a free sample of the business’s product.
A gift made by an employer to an employee is deductible in the employer’s accounts, unless gifts are also provided for others and the gifts provided to the employees are incidental to those.
- VAT is reclaimable on the cost of an employee’s gift.
Business gifts to charities etc
A business gift is allowable when made to:
- A charity
- The Historic Buildings and Monuments Commission for England
- The Trustees of the National Heritage Memorial Fund.
Where a gift is made out of trading stock, there is no requirement to bring in a receipt for the value of the gift.
Cash donations to charity
A cash donation is not a business gift, and so without special rules a gift of cash to a charity will not be tax deductible under first principles – not “wholly or exclusively” made for the purposes of the business.
An individual who is a UK taxpayer may make a Gift Aid declaration and then the recipient will obtain tax relief by way of a refund (providing that it has registered with HMRC for Gift Aid).
A company will obtain tax relief on a cash donation as a deduction from profits and there are similar conditions which apply as for Gift Aid.
Subscriptions paid to trade associations etc are not generally regarded as gifts; they are tax deductible according to the business purpose test.
If you need any advice on your bookkeeping, accounting, and tax return, please contact Preston Accountant and Bookkeeper, Gary Alker of Alker Accounting