VAT on gifts : all you need to know

What is a business gift?

The term “gift” can cover a wide range of items, including free samples, brochures, posters, advertising materials, promotional diaries and calendars, ‘thank you’ gifts to loyal customers and suppliers, and much more. It may also include gifts to staff members, such as long-service awards, retirement gifts, prizes for staff competitions and so on.

The UK government defines a “business gift” as “a definite, voluntary and unconditional transfer of goods for no consideration”. In other words, there is no expectation of anything from the recipient in return for the gift. 

Business gifts and VAT

When it comes to value-added tax (VAT) on business gifts, VAT does not have to be accounted for on the condition that the total cost of the gifts to any individual over a twelve-month period does not amount to more than £50 (excluding VAT).

For example, you buy a bunch of flowers to reward an employee. The flowers cost £32.50. As long as any other gifts you give to this same individual over the course of the year do not exceed £17.50 (i.e. up to a total of £50), you can reclaim the input VAT on the flowers and are not required to pay the output VAT to HM Revenue & Customs. 

However if, in addition to the flowers, you also give the person a hamper worth £20, you will have exceeded the £50 limit. If you reclaim the input VAT on the purchase of the gifts, you must pay the output tax on the total price of the goods as part of your VAT return. Some businesses might decide not to reclaim the input VAT on the price of business gifts, especially if this amounts to more than £50 per year for one person. This means they would not have to pay the output VAT on the gifts.

There are many other ways to compensate staff and customers, including providing entertainment services, accommodation, entry to events and clubs, or the provision of theatre or concert tickets. The VAT on these items can also, under certain circumstances, be reclaimed. The terms “employees”, “entertainment” and “overseas customers” are all carefully defined in the legislation.

Some businesses choose to reward their clients with corporate hospitality such as tickets for sporting events, meals, days out and so on. Specific rules apply regarding VAT on such expenditure.

Other less obvious “gifts” are things such as product samples, which are given away free to potential customers. If the samples you provide fall within the HMRC definition, then they are not liable for VAT.

Exceptions

The provisions above specifically cover “business” gifts. In other words, they do not cover gifts which are not used for business purposes. VAT cannot be reclaimed on the purchase of goods for personal purposes.

Similarly, specific rules apply to VAT on such items as parking, fuel, company cars, and transport costs incurred as part of normal business expenses. 

There are also specific rules around VAT on gift vouchers (for a shop, spa or another type of retailer). If you are thinking about buying a gift voucher and want to know about VAT, consult the HMRC website.

More exceptions apply to the supply of gifts which are sent from abroad. Specific rules on tax and duty requirements apply to gifts received from abroad and can be found on the HMRC website.

Conclusion

Giving away free samples, promotional materials and rewarding loyal customers and staff with small gifts is  good business sense, as is knowing how to reclaim the VAT. Mooncard corporate cards can help streamline your purchases and keep track of VAT.

Find out more with a free demonstration!