Tax on business gifts

Most people know they can claim the cost of things they buy and give away to promote their business. A typical example is branded pens. But, there is one catch which you need to know about if you intend to be generous with your gifts.

If the total cost of any business gifts made to the same person in any 12-month period exceeds £50 (and you have reclaimed VAT) you have to account for VAT on the total cost value of all the gifts.

This means that if you gave the same person two gifts of £50, you would need to pay £16.67 to the tax office on your VAT return, as if you made a sale. This would be triggered by the second gift so there would be nothing to do for the first gift.

If the person uses your gifts for business then they can reclaim VAT. You should not create a VAT invoice. Instead, you would issue an invoice and include the following statement: ‘Tax Certificate – No payment is necessary for these goods. Output tax of £XX.XX (insert amount) has been accounted for on the supply.’

However, there is one exception, samples. Free samples of your products for people to try are treated differently for VAT. You don’t have to account for VAT on a free sample you give to another person or business.