Introduction
Confused about VAT on gifts to customers? This guide has got you covered. Learn the rules, the amounts and the special cases like vouchers and overseas gifts.
Before you continue reading…
Our clients enjoy these things as standard:
- Three working hour response target for queries
- Fixed monthly payments and any ad hoc fees pre-agreed
- Full UK based team in the office 9-5 Monday-Friday
- All-inclusive tax planning and software support
- Inclusive support for tax investigations and issues (T&C’s apply)
Key Points
- Gifts under £50 are VAT free but if the total exceeds £50 in a year then VAT applies to the whole lot.
- Input tax can only be reclaimed on gifts for business purposes that have a promotional element and don’t exceed the £50 limit per person.
- Gifts to overseas customers can be zero rated under VAT if certain conditions are met, making international client engagement cost free.
What Are Business Gifts?
Business presents are more than just a token of appreciation. They are intentional tools to build loyalty, say thank you and create long term relationships. These are gifts given to advance a business’s interests and the added bonus is that the cost is VAT recoverable. They do two jobs by building business ties and delivering real benefits.
These tokens main purpose is to say thank you to clients and associates which in turn builds loyalty and the company’s reputation. The selection of client gifts – from bespoke items like engraved pens to promotional items like branded calendars – when done well can show a company’s professionalism and investment in relationships.
Having a personal touch on business gifts not only makes them stand out but having corporate branding within these gifts is a powerful promotion tool and helps create deeper connections with the recipient. By doing so it makes the gift much more effective – turning it into a marketing channel and relationship builder. Gifts that embody the giver’s values effectively represent long term relationships between businesses and those they serve.
What Is An Allowable Business Gift?
It’s important to know what constitutes a business gift to maintain compliance and manage VAT. Businesses can give gifts up to £50 per person per year without triggering VAT liabilities so they can give small tokens of appreciation that promote good relations without tax implications.
If the total value of gifts given by a business to an individual exceeds £50 in a year, the business has to pay output VAT on the full amount rather than just the excess over this limit. This is often misunderstood. But when this limit is exceeded, don’t forget that all costs are VAT taxable. For gifts above this value some businesses opt out of claiming input VAT as a way of avoiding extra tax.
For promotional items with branding and below £50 value there is no output VAT – these are great options for businesses looking to boost their marketing initiatives while staying within the rules for giving gifts with tax. To manage the complexities around VAT on gifts in a business context requires careful control over both valuation and classification of these items.
Input Tax on Gifts
Businesses can reduce their input tax on business gifts to customers as long as these gifts are for business use and have promotional elements. This allows businesses to deduct the VAT paid on these expenses from their overall tax bill making giving business gifts tax efficient.
Input tax deductions aren’t available for non-business gifts and businesses must not give more than £50 worth of gifts to a person in a year if they want to reclaim VAT. If businesses give gifts and have reclaimed input tax previously they must include VAT unless those items can be clearly identified as business gifts.
The integrity of the VAT system is maintained by this rule so only business costs get tax advantages.VAT on gifts to customers can be complicated but using examples may help. If you give gifts to customers and the total value is below £50 in any 12 month period to any one customer then you don’t have to account for output VAT on those items. This allows you to give small tokens of appreciation to your customers without incurring extra tax costs.
If the total value of gifts you give to a customer exceeds £50 in any 12 month period then they will be responsible for paying output VAT on the full cost of all those gifts. This ensures more valuable gifts get proper tax treatment.
Where you give promotional items through third party channels or intermediaries to the general public and meet certain expense limits and reciprocity conditions then you may not have to include this in your VAT accounts.
It’s essential that businesses that give gifts worth over £50 in total in any 12 month period to any one customer pay output VAT on the full value of those products. These are examples to help you create a compliant gifting policy and avoid unexpected tax liabilities related to gifting activities.
Gift Vouchers
Gift vouchers have their own VAT rules which were simplified on 1st January 2019. For single purpose vouchers VAT is accounted for at the time of issue as the VAT liability and place of supply are known. Collecting tax upfront makes life easier for businesses and the tax authorities.
For multi purpose vouchers VAT is only due on redemption to avoid non taxation or double taxation and to provide clarity in the VAT system.
Despite these simplifications mistakes in VAT treatment of vouchers have been common since the rules changed. Stay informed and vigilant to avoid these pitfalls.
VAT on Free Samples
Free samples given away for business purposes with no charge and with a genuine intention to promote commercial activities are not subject to VAT regardless of the value of the samples.
When businesses give away free product samples to potential customers as a promotional activity this is usually considered part of this exemption so businesses can market their goods without VAT.
Gifts to overseas customers may be VAT free so you don’t have to charge VAT on these supplies if certain conditions are met. This zero rating applies to gifts sent outside the EU too so you can expand your international presence without extra tax costs.
To get this zero rating you need to keep records of where the gift is being sent and VAT rules are being met. You need to record the value and type of gifts sent abroad so you can prove you are eligible for VAT relief and comply with the rules while getting the tax benefit.
Corporate Gifts and Long Service Awards
The VAT rules for corporate gifts and long service awards state that if a business keeps the total cost of these gifts under £50 per employee per year, they can reclaim the VAT and reward their staff with minimal tax implications.
If the total value of these gifts exceeds this limit for any one employee in a year, then VAT must be paid on the whole cost. To make successful claims you need to keep accurate records including VAT invoices and business justification for the gifts or retirement presents or long service awards.
Businesses can deduct input tax on staff celebrations that are deemed to be motivational expenses. This is provided they are exclusive to employees. Including non-employees without charge breaches this rule. So businesses can have events for their staff while still adhering to the tax rules and minimising taxable spend.
Non-Business Purposes
Gifts for personal use are not business assets and the input tax on them is not recoverable. This applies to gifts to friends or family, as these are not business expenses. If items are purchased for business purposes and then gifted for non-business purposes the business must account for output tax equal to the input tax they previously reclaimed.
Businesses can reclaim input tax when there is uncertainty over VAT on gifts given to individuals who are not employees. It’s important businesses understand these differences so they can comply with the rules and avoid compliance issues.
Entertainment and Staff Gifts
In the UK gifts given in a business context are usually treated as entertainment expenses for tax purposes. There are many ways to show appreciation to staff and clients beyond traditional gifts. These can include providing services such as accommodation or event access, and tickets to shows or concerts. These gestures not only boost staff morale but also strengthen relationships with clients by giving them an experience they will remember.
When it comes to treating clients, contacts and suppliers to entertainment activities these are business entertainment. So any input tax on these types of expenses is usually non-deductible. Businesses often make mistakes when splitting input tax between what’s for staff and what’s for clients. This leads to incorrect VAT claims being submitted. Proper management of these expenses is key to compliance.
Tax Certificate
A document that shows the accounting of output tax and confirms no tax is due on gifts to customers is called a tax certificate. To issue such a certificate companies can use their normal invoicing system to check that VAT has been accounted for on the supply.
For more information on how to follow VAT procedures when issuing these certificates see VAT Notice 700/7. Following this notice will ensure clarity and compliance during the process of giving gifts.
Common Mistakes to Avoid
Companies often forget to consider VAT on gifts which can lead to unexpected costs and expensive corrections. Ignoring VAT on these items can incur extra charges from future adjustments and penalties. Companies often try to reclaim input tax on gifts for personal use. This is against VAT rules.
It’s important for companies to understand and follow these rules on gifts to avoid common mistakes. With careful planning and good record keeping companies can navigate the complexities of these VAT rules.
Summary
In summary, understanding VAT on business gifts is key to avoiding regulatory headaches and surprise costs. This guide has covered what is a business gift, gift vouchers and overseas customers, all you need to know for VAT compliance.
By following these rules and avoiding common mistakes, companies can use gifting as a deliberate way to build relationships and their brand. VAT management means it’s not just compliant with the law but a powerful tool in any business’s arsenal.
FAQs
What is the VAT limit for business gifts?
You can give gifts to recipients up to £50 per year without incurring VAT, that’s the VAT threshold for business gifts.
How is VAT treated for single purpose and multi purpose gift vouchers?
VAT is charged when single purpose gift vouchers are issued. For multi purpose gift vouchers VAT is charged when they are redeemed.
Understanding this difference is key to managing your tax obligations in either scenario.
Are free samples subject to VAT?
Free samples given for genuine business purposes are VAT exempt regardless of value.
Make sure the samples are for business use to qualify for this exemption.
What documentation is needed for zero rating VAT on gifts to overseas customers?
To zero rate VAT on gifts to overseas customers you need to keep documentation that proves the gift went to the overseas customer and complied with VAT regulations.
This includes shipping evidence and any relevant customs documentation.
What are the common mistakes businesses make with VAT on gifts?
Businesses overlook VAT implications and incorrectly reclaim input tax on gifts especially those used for personal purposes which can lead to compliance issues.
Proper documentation management is key to avoiding these common mistakes.
