Contractors' Questions: Can I buy tax-free Christmas gifts for clients?

Contractor’s Question: Although the recommended action when wanting to thank a colleague at Christmas is going for dinner or having a party rather giving a present, a gift is a much more practical way for me to thank my clients and my one member of staff. What’s the best way to do this from a tax standpoint?

Expert’s Answer: Minor gifts may actually be provided tax-free for employees according to the rules from HM Revenue & Customs. But care is needed because there is no set limit. So for example, a turkey or bottle of wine or box of chocolates could be provided by you as a seasonal gift for your employee. Each of these items would not be taxable as they would be considered trivial.

In the event that the gift you want to give goes beyond the trivial – so a case of wine rather than just a bottle, or a Christmas hamper instead of a single turkey, you should consult an accountant, as it is likely to constitute a benefit-in-kind in HMRC’s eyes. Remember also that cash presents, such as annual bonuses, will require tax and NICs to be paid.

As regards providing gifts to your clients, you should note that there is a £50 limit in any one tax year. You should also be aware that the gift must be business-related – a calendar, clock or pen would qualify. In addition, the item must clearly carry an advert for your business – so at least your company’s name needs to be on the item. If not, it will be disallowed as it will be classed as entertainment expenditure.

The expert was Paul Samrah, partner at chartered accountancy firm Kingston Smith LLP.

Wednesday 2nd December 2015