The rules for deciding whether a gift given in the course of business is deductible are complex. The rules for business gifts generally follow those for business entertaining expenditure. This means that HMRC take the view that in general business gifts are not an allowable deduction from profit for tax purposes.
However, there are exceptions to this rule. Where the following exceptions apply, the expenses incurred in providing the gift are deductible from trading profits. The exceptions are where:
- the gift is of an item which it is the trader’s trade to provide and it is given away in the ordinary course of the trade to advertise to the public
- the gift incorporates a conspicuous advertisement for the trader, although there are exclusions relating to the type of gift and the total amount per person
- the gift is provided to the employees of the trader so long as this is not incidental to gifts being provided to others
- the gift is given to charity or other specific bodies.
HMRC is clear that in some instances, something that appears to be a gift may actually be a part of a sale to a customer. HMRC’s manuals provide the example of a bunch of flowers presented to a customer who has just purchased a new car would effectively have been paid for by the customer – it is a part of the cost of the car. Similarly, gifts offered to customers who purchase a certain level of goods are really discounts on sale and not business gifts. Gifts of this nature are not disallowed by the legislation.