Business gifts are not allowed as a deduction against profits. The legislation treats gifts in the same way as business entertaining expenditure.
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. An example of this would be gifts provided for potential customers who take a test drive in a new car – there is no obligation to buy the car and so nothing has been given to the trader in return for the gift.
Gifts may also arise where goods or services are supplied at less than the cost to the trader. For instance, a hotel might offer meals to its suppliers at a nominal charge. Here the difference between the cost of the meal and the price paid is a non-allowable gift. By contrast, if a baker reduces the price of fresh bread at the end of the day, this is a normal commercial transaction (as the bread will be worthless by the next day) and the cost is allowed in full.
Even if the recipient of the gift has provided a service to the trader, no deduction should be allowed unless it can be shown that the trader was under some contractual obligation to offer the gift. It is not unusual, for instance, for organisers of meetings or conferences to send small gifts, such as hampers or vouchers, to speakers after the event. However, if the provision of a gift was not one of the conditions upon which the speaker agreed to attend, then the gift is treated as business entertainment expenditure, and the cost disallowed.
Source: informanagement
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