VAT Rules for Staff & Customer Gifts

It’s that time of year again — when you want to thank your loyal customers and reward the team that kept your projects on track (even when the rain didn’t!).

As Christmas approaches, it’s only natural to want to say thank you — to the loyal clients who’ve kept your business busy and the hardworking team who’ve kept your projects on track. Whether it’s a festive hamper, a bottle of wine, or a thoughtful voucher, showing appreciation at the end of the year is good business practice.

But before you load up the sleigh with gifts, there’s one important question to answer:

Can you reclaim the VAT on those Christmas gifts?

Let’s unwrap the rules

1. Gifts Must Have a Business Purpose

To reclaim VAT (input tax), the expense must be for the purpose of your business — not just of benefit to it.

Business purpose: Gifts to staff and customers who help your business thrive.

No business purpose: Presents to family or friends, even if you bought them through your company.

Tip: Keep non-business expenses completely separate from your business records — it keeps your books clean and saves you hassle later.

Trap: “No payment” means no payment at all — monetary or otherwise. For example, if you give a Christmas hamper to your window cleaner in exchange for a free window wash, that’s not a gift — it’s a barter transaction.

2. When to Declare Output Tax

If you’ve reclaimed VAT on gifts, you may need to account for output tax (VAT due on what you give away).

Here’s the key rule:

• If a gift costs less than £50 (excluding VAT) per person in any 12-month period → no output tax is due.

• If the value exceeds £50 → you must account for output tax on the full amount, not just the excess.

Example: You give a £30 Christmas hamper in June and a £25 bottle of wine in December to the same customer. That totals £55 in 12 months — meaning you’ll need to account for VAT on both gifts.

Tip: Output tax is based on the cost you paid for the goods, not their retail value.

Trap: Once you go over the £50 limit, all previous gifts in that 12-month period become taxable too.

3. Mixed Business and Non-Business Gifts

Sometimes it’s not clear at the time of purchase who the gifts will go to — for example, you buy a few crates of vintage wine, some for staff, some for clients, and maybe a bottle or two for home.

You can claim input tax on the entire purchase initially, but when you give any away for non-business purposes, you’ll need to account for output tax on those.

4. Don’t Forget the Tax Certificate

If you gift items to a VAT-registered customer, and output tax is due because the £50 limit has been exceeded, they might be able to reclaim that VAT — but only if you issue a tax certificate, not a tax invoice.

The certificate should include:

“No payment is necessary for these goods. Output tax of £X has been accounted for on the supply.”

That way, your customer can reclaim the VAT — even if it slightly dampens the festive spirit!

Trap: Never issue a standard tax invoice for a gift — only a tax certificate.

Final Thoughts for Construction Businesses

In the construction industry, where relationships and reputation mean everything, festive gifting is a great way to show appreciation and build loyalty. Just make sure your generosity doesn’t trip up your VAT records.

In short:

• You can reclaim VAT if there’s a clear business purpose.

• No need to account for VAT if the gift is under £50 (excluding VAT).

• Go over the £50 limit, and VAT is due on all gifts to that person in the past year.

• Always issue a tax certificate, not an invoice, for VAT-registered customers.