You may think that at the end of a long hard year, like 2020, your staff and customers deserve an extra bonus or gift so you can show your gratitude. Gifts for your customers do fall into the category of entertainment, an expense which is not usually tax-deductible.
However, there are some exceptions to this rule.
If your gift includes a noticeable promotion of your company, you can include it as deductible expenses in your end of year returns. For example, a calendar with your company logo, or a washcloth. However, this does not apply to consumables such as food, drink, tobacco or gift cards. You also cannot deduct gifts exceeding a value of £50.
Another way you can deduct your gift expenses from your annual tax returns is by making a gift of your product, and give away that item during your normal business hours, such as for promotional purposes.
Gifts to employees are tax-deductible on the whole, but it is important your gifts to employees are not excessive throughout the year, or else they will be counted as a benefit in kind, and cause the employee to pay tax on it.
The rules are that the gift must not exceed £50 per person. It should not be in lieu of a normal salary or related to the work carried out. Nor should it be in the form of extra cash or a voucher exchangeable for cash.
You can actually claim the input VAT on gifts for your staff and customers if the total is less than £50 per person. If you have given more than that to a person and have claimed the input VAT, you will have to charge output VAT on the total gift cost.
It may therefore be easier not to claim the VAT in the first place.
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We are happy to advise you further in any way you need. As a small business ourselves, we understand the struggles of rewarding your staff and customers effectively and will be able to offer you empathy and advice.