Whether it’s Christmas, a birthday, as recognition or a thank you, or any other kind of celebration or occasion, giving gifts to employees and clients, as well as offering hospitality, is a common and important part of building good business relationships, both internally and externally.
Whether you’re dealing with those in your own organisation, a client or a supplier, there are rules about what you can and can’t do – both financial and ethical – and it’s important to have a proper policy in place to ensure any employee or client gifts or hospitality are appropriate and legal.
It may be a weighty topic to consider when you’re thinking of sending a bottle of wine to your clients for Christmas – which is usually harmless – but there does come a point where even a simple gift could be seen as a bribe. The same is true of hospitality, but we’ll use “gift” as a shorthand for both here.
The Institute of Business Ethics (IBE) defines when a gift is not a gift as when a “business relationship will be altered, or if there is an expectation that it will be influenced in some way”. This is difficult, of course, as even the most well-meaning of gifts is given as much to keep your organisation in mind next time a client needs a quote, for example, as it is to express thanks.
But there is a difference between keeping your organisation in mind, and giving a gift that is clearly meant to influence. A few guidelines are:
- Is the gift excessively high in value, relative to the person receiving it? For example, a value of, say, £100 will be of much higher value to a junior member of a procurement team than it would be to a CEO. A good way to look at it is, would the person receiving the gift easily be able to give something of the same value in return?
- Would you be embarrassed if anyone else found out about the gift? What would your reaction be if you heard about it yourself?
- Have you given gifts of equal value to all, or are some receiving special treatment? What has determined that special treatment? Does it create a conflict of interest for the person receiving it?
- Is the timing appropriate? For example, giving a gift while in the middle of contract negotiations – even if that happens to be around Christmas, or someone’s birthday – is likely to be inappropriate.
These questions also work well in regard to whether you should receive gifts, as accepting a bribe is as illegal as giving one. Best practice for both giving and receiving gifts is often to have a gift register, with anything over a certain value – usually something relatively low – needing to be recorded. You can find a basic template here.
When refusing a high value gift isn’t possible for reasons of etiquette, the IBE suggests raffling them for charity. The most important thing is openness and transparency. It may be helpful to read the government’s own anti-bribery policy for more information, which you can find here.
When giving gifts to employees and clients, there are tax and National Insurance (NI) obligations that you have to follow. It varies depending on the gifts and benefits offered – you can view the full list here – but we’ll go over a few of the more common ones below.
Food and groceries
Covering food hampers, bottles of wine and festive treats, you have to report the cost of any food or groceries that have no resale value given to employees as gifts, and pay class 1A NI on the cost. For more info and the specific forms required, click here.
Bonuses count as earnings, so they’ll need to be added to the employee’s monthly earnings, with PAYE and NI deducted as usual.
Gifts such as tech, toys, accessories and so on need to reported, and NI needs to be paid on the value. This is where it gets a bit more complicated – if the gifts have no resale value, you use the amount they cost. If they have a resale value different to the amount you paid, you report the higher of the two. For more information on this, click here.
Some smaller gifts and benefits could be counted as trivial benefits, which can be excluded from tax. While government guidance suggests this is usually used for things such as flowers when someone’s ill rather than Christmas gifts, some experts claim that cheaper gifts such as a box of chocolates of a bottle of (non-vintage!) wine can be classed as trivial – but if you have any doubt, there is a HMRC helpline to help.
Vouchers that are exchangeable for cash, or goods and services, must also be reported and taxed. If they can be exchanged for cash, they count as earnings, so the same rules apply as to bonuses.
If they’re for goods and services, they need to be reported, and the cost should be added to the employee’s earnings, and then NI – but not PAYE – should be deducted. For more information, click here.
There are also a few kinds of vouchers that are exempt from NI – find out more here.
Client entertainment and hospitality
There are two types of entertainment, according to the HMRC:
- Business entertainment – when you take a client out for the sole purpose of discussing business, whether it’s a specific project, or to build or maintain a business relationship.
- Non-business entertainment – this is more difficult to define, but HMRC says “entertaining a business acquaintance for social reasons”.
For example, the latter could be taking a client out for drinks to get to know each other following a meeting – the social event and business meeting are totally separate. The former would be conducting the meeting over dinner.
Business entertainment costs must be reported, but tax and NI doesn’t have to be paid.
Non-business entertainment is, again, more complicated, and depends on whether an employer or an employee has arranged the entertainment, and whether the employer has paid, or if the employee pays and is reimbursed. For more information on the specifics, read the government’s guidance.
Whatever you decide to give to your employees or clients, make sure everything’s above board and complies with all the necessary laws and obligations.