As accountants, one of the most common questions we get asked by business owners is, “Can I reclaim VAT on gifts for clients or staff?”
The short answer is: yes.
However, like with all things when it comes to HMRC, it depends on a range of factors and, of course, adhering to specific HMRC guidelines.
Here is a mini-guide on gifting and reclaiming VAT to help answer the question better.
Understanding VAT on business gifts
When your business purchases items intended as gifts, the VAT incurred can often be offset, i.e. reclaimed against the VAT you have received, provided these gifts are for business purposes. However, there are rules to consider, especially concerning the value of these gifts.
The £50 rule
HMRC stipulates that if the total cost of all gifts given to the same person within a 12-month period does not exceed £50 (excluding VAT), you can reclaim the VAT without any further obligations.
Example: If you gift a client a branded pen worth £20 and later in the year a diary worth £25, the combined value is £45. Since this total is under the £50 threshold, you can reclaim the VAT on both items.
However, if the combined value exceeds £50 within the same 12-month period, you can’t reclaim the VAT on these gifts.
Example: If you provide an individual customer with three gifts in a 12-month period, each costing £20 plus VAT, the total is £60. Since this exceeds the £50 limit, you can’t reclaim the VAT on any of these gifts.
Gifts to employees
Gifts to staff are generally treated similarly to gifts to clients in terms of VAT. If the total cost of gifts to an employee does not exceed £50 in a 12-month period, you can reclaim the VAT.
However, it’s essential to ensure these gifts are for business purposes and are not personal.
Trivial Benefits: Some small gifts to employees may qualify as ‘trivial benefits,’ which are exempt from tax and National Insurance. To qualify, the gift must:
- Cost £50 or less.
- Not be cash or a cash voucher.
- Not be a reward for work or performance.
- Not be in the terms of their contract.
For such trivial benefits, you can reclaim the VAT.
Exceptions and considerations
In true HMRC fashion, there are exceptions to the rules. For example:
- Non-business gifts: If the gift is not for business purposes (e.g. gifts to friends or family unrelated to the business), you cannot reclaim the VAT.
- Business promotions: If gifts are part of a promotion (e.g., ‘buy one, get one free’), different VAT rules may apply. It’s crucial to distinguish between genuine gifts and promotional items tied to sales.
A note on record keeping
As with any claims, maintaining accurate records is vital! Ensure you document:
- The cost of each gift.
- The recipient’s details.
- The date of the gift.
- The business purpose of the gift.
This documentation will support your VAT reclaim and demonstrate compliance with HMRC guidelines.
Gift smart and make the most of your VAT!
Reclaiming VAT on client or staff gifts is permissible within HMRC’s guidelines, primarily hinging on the £50 rule over a 12-month period. Always ensure the gifts serve a genuine business purpose and maintain thorough records to support your claims.
Need help? We can help ease the pressure in various areas, from tax and VAT matters to staff incentives and ensuring your finances align with your growth plans. Get in touch; we’d love to chat and see how we can help your business succeed.
