Jack Bennett Tax Consultant

What are the tax consequences of gifts to my customers?

It’s nearly the end of 2019, and many will be using this opportunity to visit their customers, thank them for their support during 2019, and find out what their plans are for 2020. Often these meetings are accompanied with a business gift, which has a significant impact on the customer relationship. But what are the tax consequences of giving out gifts to our customers?

Usually business gifts to customers are not tax-deductible expenses, as this is seen to be entertaining costs. There are however some circumstances where a business gift can be included as a tax-deductible expense and therefore reduce the balance of tax due.

Advertising gifts

Can I give a customer a gift, and advertise my company as well?

As long as the gift has cost less than £50, and includes a conspicuous advertisement of your company or brand, then this should qualify for tax relief. There are a few further conditions in relation to this, as follows:

  • This gift cannot consist of food, drink, tobacco or an exchangeable voucher
  • HMRC have specified that the advertisement must be on the gift, rather than just an advertisement on the packaging.
  • The cost must be less than £50 for any one customer, during that financial period. This means that you cannot give multiple gifts of up to £50 to any one customer during the financial year.

Why not try a branded Golf Umbrella or branded laptop case? Not only could these expenses qualify for a tax deduction, but they will also promote your brand to the public

Stock gifts

A further option for customer gifts, is a gift of one of your products. The only caveat is that the product must usually be given away during the ordinary course of business, to advertise to the public generally. Think about products that you would usually give away as free samples – could these be used as a customer gift for the end of 2019?

Gifts upon sale

In certain circumstances, an item may be classified as part of the sale, rather than a business gift, and so qualify for a tax deduction. Also, there are not any restrictions on the cost of the item, or whether this includes food or drink etc. The critical condition that must be met, is that the ‘gift’ must be part of the sale. For example, if you offered a gift to customers if they purchase a certain value of goods, then this would qualify as a discount on the sale of the products. This would obviously qualify as a business expense and would be tax deductible for the company.

Whilst the restriction in relation to tax-deductible customer gifts can often limit the options available, it does also present opportunities to promote your brand and save tax at the same time. If you spent £5,000 on tax-deductible gifts, this will save £950 Corporation tax at the current rates.