Tax implications of giving gifts to clients.

rockbottom

I have a number of people who regularly refer business to me. I would like to formalise this process by offering a gift to people when they have referred a certain level of business to me. Almost like a referral fee. I am just wondering what the tax implications of this are?

Suppose I was to give a gift with a value of over €250 to a referrer. Firstly, am I allowed to write this off as a business expense? Would I be able to claim back the VAT that was included in the purchase price of the gift? Also, is there anything I need to do or that the gift recipient needs to do regarding any tax implications that they may have as a result of receiving the gift?

Any help would be greatly appreciated.

thomlin

Hi RockBottom,

While your idea is a lovely gesture I am afraid that is all it is.

You can't claim it as an expense against the business or claim the VAT on the purchase either as it is not a business expense.

From the revenues point of view it would be treated the same way as they look at entertaining customers/clients.

They do allow business to claim relief on referral fees but then you would have to have received invoices with VAT on them in order to claim them back as legitimate expenses of the business.

HTH

Tom

rockbottom

Thanks for the response Tom.

I had originally thought of referral fees ie giving the referrer a percentage of each sale they refer to me but had thought a gift would be simpler. How would giving a referral fee work? Are you saying I could claim referral fees as an expense but the referrer would have to issue me with an invoice for that referral fee?

I had originally gotten the gift idea from one of those voucher companies. They suggest their vouchers as a tax efficient way of rewarding employees. I called them up and asked if giving their vouchers to clients could be written off as an expense in my accounts. They said they could. They would say that though wouldnt they.

Victor

The most tax (and business) efficient way of doing this would probably be to give referrers a discount.

From the Revenue's point of view, if you give gifts, and they give gifts, then potentially it is just a big scam to buy the goods for yourself.

rockbottom

Unfortunately, the people doing the referring dont actually need my service, so a discount would be of no use to them. They are dealing with people who need my service on a daily basis so I want to give them an incentive to recommend me to their clients. So basically I can give them cash, vouchers or gifts as a thank you, I just cant class them as a business expense? So schemes like "refer a friend" ones that give customers rewards for referring friends to a company, those rewards cant be written off as business expenses?

thomlin

Hi RockBottom,

I would be dubious about the voucher company claims they may be valid, but I would suggest checking with revenue before committing yourself to such an expense.

They would have to issue you with an invoice in order for you to claim it as a business expense and then they would be liable to income tax on that fee.

If you gave gifts then you are opening another possible can of worms as you can't claim it as a business expense and if you did then the revenue might see it as an income on the person you gifted and charge them income tax on the value of the gift.

Some companies used this as a means to avoiding tax and was soon amended by the tax office just as if you were taking goods out of your business it is regarded as income to yourself.

You can make a donation which is allowed by the revenue to a recognized charity but it has to be a one off payment of 250 minimum as I have no idea how much your gift will be I would suggest you offer them that option and when you have accumulated enough to that value then make payment then. this will be allowed as an expense in your tax return.

Short of that I can't think of any other way of you can repay them and claim it as a business expense without forcing income tax on the gift to them.

Tom