As a company director, there will be plenty of occasions when you might want to pay for a gift – to a client, or even something to say thank you to your accountant! You might think you deserve a modest perk for yourself and/or your co-directors.
How gifts are accounted for depends very much on who the gift is for and why you are giving it.
A £40 gift to a client can be treated very differently from a £40 gift to an employee or director.
Gifts to clients and customers
Generally speaking, any gifts your company gives to clients are treated in the same way as business entertainment – the costs are not deductible for Corporation Tax.
However, a small exception applies to small promotional gifts.
Your company can usually offset the cost of gifts that carry a conspicuous advertisement for your business, cost no more than £50 in total to the same person during the company’s accounting period, and are not food, drink, tobacco, or a voucher.
That might cover something like a branded pen, notebook, or other promotional item with your company name or logo printed on it.
The advert needs to be on the gift itself, rather than just on the packaging.
You can read more about this particular exemption in BIM45070.
What if the client gift costs more than £50?
The £50 limit is not an allowance, so if the qualifying promotional gifts to the same client go over £50 in the accounting period, your company can’t use the exemption, and the cost will not normally be tax-deductible.
Because the rules are so strict about what you can include within this £50 limit, a £30 notebook with your company branding may qualify, but a £30 bottle of Prosecco normally will not.
If you’re considering giving gifts as part of a larger campaign to promote your business, read more in our guide to marketing and advertising expenses.
What are trivial benefits?
Trivial benefits differ from ‘business gifts’ because they relate to employees and directors rather than clients.
Your company can provide small benefits to your staff and directors, without incurring any tax or NI liabilities, as long as all of these conditions apply:
- It costs £50 or less.
- It is not cash or a cash voucher.
- It is not a reward for work or performance.
- The employee is not already entitled to the benefit under their contract.
You can read a useful summary of the rules on HMRC’s trivial benefits page.
What counts as a trivial benefit?
There is no ‘official list’ of what qualifies as a trivial benefit, but some typical examples include a small gift, a modest meal, a box of chocolates or a non-cash gift card. What matters is the reason why you provided the benefit, not what the gift or object is.
If you give one of your employees £40 to thank them for hitting a sales target that month, this is a performance reward and doesn’t qualify.
However, if it’s your employee’s birthday, and you give them a £40 gift – with no link to the work they’ve done- it may well qualify.
The £50 limit applies to each individual benefit. If you go a penny over this limit, the entire amount falls outside the exemption.
What about small limited company directors?
Directors can use the trivial benefits exemption too, but close companies have an extra annual limit for directors.
Most small owner-managed limited companies are close companies for tax purposes, and a director can receive up to £300 of qualifying trivial benefits in a tax year.
Each individual benefit still has to meet the normal £50 limit and the other conditions we’ve described above, so theoretically a director can receive six separate benefits worth up to £50 each during a single tax year.
You can read more in EIM21869.
Can your company buy you vouchers?
Yes, but once again, there are strict limitations – a trivial benefit cannot be cash or a cash voucher.
A non-cash voucher may qualify where it meets all of the other conditions listed above. For example, a £40 voucher which can only be spent with a particular retailer may be fine, provided it is not being given as a reward for work and is not part of the director’s or employee’s contractual pay.
If you gift a voucher which has a cash-in value, it won’t qualify.
What about gifts to your spouse or family?
If a trivial benefit is provided to a member of a director’s family or household, its value will normally count towards that director’s £300 annual limit.
If the family member is also an employee or director of the same company in their own right, their position can be different, and they may have their own limit.
HMRC deals with this specifically in EIM21870.
What about VAT on business gifts?
If your company is VAT registered, you can usually give business gifts costing up to £50 in total over a 12-month period without having to account for VAT.
If you go over that £50 limit for the same person, though, you may need to account for output VAT on the gifts. You can read more here.
Need more advice? Get in touch.
If you’re unsure whether a gift or benefit will qualify, it’s worth checking with your accountant before putting it through the company.
Click here to contact the Integro team. We’re always here to help.
Read our popular guide to limited company expenses for more information on the costs your company can claim.
