Business gifts and VAT
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When entertaining clients, engaging in marketing activity or giving to charity, it is important to know which expenses are tax deductible and which ones you will have to pay for yourself. Afsheen Latif reports
The importance of looking after important customers has been known ever since people began trading. But when it comes to business gifts, what can you claim for? When it comes to VAT, what are the rules?
"Gifts are allowed, as long as the cost to your business is £50 or less and they do not form part of a succession of such gifts to the same person," explains VAT consultant Bahar Ullah, of Giles Carrington and Associates. "For example, I can send a hamper of food and drink up to the value of £50 as a 'thank-you gift' to someone for assisting me with some advice." The VAT element on the cost of business gifts is deductible if these are in the form of advertising for your business. Ullah explains: "Such gifts can be treated as advertising overheads. This could be promotional items, such as mouse mats, pens, T-shirts and diaries, but the advertising, usually in the form of your logo, must appear on the item itself, not just on the wrapping." Gifts you order for promotional advertising must not be food, wine or tobacco; nor can they be gift vouchers people can exchange for goods. Running a competition If you are running a competition, in the majority of cases the cost of the prize is not VAT deductible. There are two exceptions to this rule. Firstly, if the prize you are offering is from among your own products or services, then it is allowed under VAT rules. Secondly, if the competition is open to the general public, then it is also allowed. "However, you must account for the output tax on the cost value of the goods or services to yourself," Ullah adds. If your business is likely to get publicity from the competition winner, because you have written it into the terms and conditions of the prize draw, the cost of the prize is allowed. This is because the publicity you will get in return for the prize represents a commercial exchange. Giving to charity "Many businesses give money to charity, but subscriptions for general charitable giving are non-deductible under VAT rules because they are not made for business purposes," explains Ullah. "However, if you give to a charity with which you have a direct trade connection, for example, you may subscribe to their magazine because it may be of interest to your business, you can claim this as an expense and it is allowed under tax rules." Navigating your way around the laws of business giving, including gifts and charitable donations, can be challenging. "In most cases, when the giving constitutes a direct commercial exchange with your business, it is allowed under normal VAT rules. If it is an expense you have incurred with no direct commercial exchange, it can be classified as non-deductible," Ullah concludes.
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