How do you show your appreciation for your customers?
I’ve recently read Never Lose a Customer Again, by Joey Coleman, and one of the things he recommends is giving people gifts to help improve business relationships. But one thing that jumped out at me when I was reading is that Joey’s guidelines about what makes a good business gift don’t mesh with the HMRC guidelines on gift-giving.
It’s not surprising that these two resources take a very different approach to business gift-giving. Ultimately, Joey’s main concern is helping you grow your business and cement business relationships, while HMRC is far more worried about whether you’re trying to pass your Christmas shopping off as a business expense. Two very different priorities!
So, if you’re interested in giving your customers a gift to show your appreciation, should you go ahead and order them something special?
What’s your goal?
The key thing to consider is what is your business goal?
Presumably, your primary goal is to grow your business. And if you make more profits, you're going to have to pay more tax. Sad but true!
But here’s the thing you really need to remember: if something isn’t tax deductible, it doesn’t mean it’s not a worthwhile business expense. So, if something — like a client gift — is going to help you strengthen that relationship and potentially help you grow your business, go for it. You can easily justify that kind of expense. All that happens is when it comes to tax calculation, you can't actually include it as an expense. And yes, that means you will pay a bit more tax than if it was tax deductible.
It’s also worth considering whether that potential tax saving — which would work out to be around 19% — would make the difference between whether or not you would make that purchase. And if it would, I would perhaps argue that, well, do you need to make that expense pay for that in the first place?
What about branded gifts?
Tempted to give your clients branded gifts so you can make it tax deductible?
Well, while it might save you a little cash, Joey isn’t a fan of this approach: he thinks gifts should be more personal and have some sort of significance to the person you’re giving it to. Which rules out that biro with your logo and brand colours splashed all over it. And I would have to agree with him. Tax advantages or not, your own mum is pretty much the only person who’s going to want to use that pen!
The bottom line here: if a client gift is going to help you improve your client relationships and lead to more business, it’s probably worth splashing out on something personal, even if you can’t actually include it in your tax calculations.
Hope you’ve found this useful. And if you have any specific queries on tax deductible gifts, drop me a line and I’d be happy to help.
