Are gifts to customers tax-deductible?

As we approach the end of 2024, many business owners will begin contemplating tokens of appreciation for their loyal customers and clients, acknowledging their support over the past year.
The concept of a business gift can be confusing, you might find yourself asking, when are gifts to customers tax-deductible?

In many cases, the general rule for gifts given to customers by businesses is that they do not qualify as tax-deductible expenses, so it is important to have a clear understanding of what does and doesn’t qualify in view of maximising the situations where tax relief is available.

There are three instances where tax relief is applicable to client gifts:

Advertising Gifts:HMRC permits corporate gifts with a value of up to £50 to any individual in a tax year, provided that the gift prominently features advertising for your business. Your business name or logo should be clearly displayed for it to be recognised as a corporate gift. Such gifts cannot include food, beverages, or exchangeable vouchers. Some suitable examples include:

• a golf umbrella
• laptop case
• diary
• coffee mug
• bottle opener
• calendar
• water bottle

Not only can these expenses potentially be tax-deductible, but they also serve as effective promotional tools for your brand. It's important to note that if the gift's cost exceeds £50, HMRC will disallow the entire amount for tax deduction, not just the amount exceeding £50.

Stock Gifts:Alternatively, you can provide items or products that serve as general advertising materials. Any products typically given as free samples can be used as tax-deductible gifts to customers.

Gifts upon Sale:In certain situations, an item may be categorised as part of a sale, rather than a business gift, making it eligible for tax deduction. There are no cost restrictions, or restrictions on whether the item includes food or beverages. The key condition is that the "gift" must be considered part of the sale. For instance, if you offer a gift to customers when they purchase a certain value of goods, it qualifies as a discount on the sale of the products, therefore becoming a tax-deductible business expense.

While the limitations on tax-deductible customer gifts can be restrictive, there are opportunities to enhance your brand visibility and achieve tax savings simultaneously. For instance, if you spend £5,000 on tax-deductible gifts, this can result in a reduction of up to £1,250 in your corporation tax, based on current rates.

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Please note: This article is provided for information only and was correct as at time of writing (07/11/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.