Gifts to clients: when they are tax deductible, and when VAT is due

A gift to a client is taxed twice over, by two different rules. For corporation tax the starting point is that it is not deductible: the Act treats gifts like entertaining. It becomes deductible mainly when it carries a conspicuous advertisement for your company, costs no more than £50 to that person in the accounting period, and is not food, drink, tobacco or a voucher. For VAT the question is different: whether the gift is a supply. Goods costing less than £50 excluding VAT to the same person in twelve months are not; above that, VAT is due on the total. A branded bottle of wine can therefore be outside VAT and still not deductible.

Ten client gifts, two taxes

Corporation tax: gifts are treated like entertaining

Section 1298 of the Corporation Tax Act 2009 disallows expenses on “entertainment or gifts”: “no deduction is allowed for the expenses in calculating income from any source for corporation tax purposes”. HMRC’s manual puts it plainly: “Business gifts are not allowed as a deduction against profits. The legislation treats gifts in the same way as business entertaining expenditure”.

What is a gift? “A gift is something that is given to a person without receiving anything in exchange. It is offered voluntarily and without any expectation of a return.” That excludes some things that look like gifts. Rewards tied to a purchase are pricing: “Similarly, gifts offered to customers who purchase a certain level of goods are really discounts on sale and not business gifts.”

The advertising exception

Three tests at once, then. The gift must carry a conspicuous advertisement for the company. It must not be food, drink, tobacco or a voucher — even if branded. And the total of such gifts to the same person in the accounting period must not exceed £50.

The other exceptions

• Employees: “Case C is where gifts are provided for employees of the company unless— a gifts are also provided for others, and b the provision of the gifts for the employees is incidental to the provision of gifts for the others.”
• Charities: “Case D is where the gift is given to— a a charity” and certain heritage bodies.
• Case A covers a business that gives away its own product to advertise to the public generally.

Gifts to speakers and helpers

VAT: when a gift becomes a supply

Business gifts of goods are, in HMRC’s words, “These are normally taxable supplies” — with one important carve-out. The gifts that do not constitute supplies are:

And over the line: “However where the total cost of the business gifts exceeds £50 and the donor has an entitlement to reclaim VAT, then they will have to account for VAT on the total cost value of all the gifts for the period.” Note the three differences from the corporation tax rule: VAT uses cost excluding VAT, counts any twelve-month period rather than the accounting period, and does not care whether the gift is branded, food or drink.

Gift or hospitality?

A meal, a ticket to an event or a hotel stay given to a client is hospitality, not a gift of goods, and falls under the business entertainment rules: not deductible, and for VAT, “You cannot recover input tax incurred on the provision of business entertainment expenses.” The detail is on staff parties and client entertainment. Gifts to your own staff are on trivial benefits.

For the finance team

• Record each gift against the recipient, so both the £50 tests can be checked.
• Code branded non-food gifts separately from hampers, drink and vouchers.
• Track the VAT twelve-month total per recipient where the business reclaims VAT on the gifts.
• Keep hospitality on its own code.

This page quotes the Corporation Tax Act 2009 and HMRC’s manuals as read on 2026-09-29; it is not tax advice.

Common questions