Gift Vouchers and Gift Cards - What About The Tax

If you are a trade supplier, you might be considering providing gift cards or vouchers to clients for the festive season. There are various tax treatments, depending on the circumstances.

Trade suppliers are allowed a deduction for the expense incurred on the gift cards.

Gift cards or vouchers provided to clients which are not limited to food and drink, i.e. ‘Prezzy cards’ or general merchandise stores, are 100% deductible. Gift cards from merchants selling only food and drink, such as liquor store gift cards, may only be 50% deductible, coming under the entertainment expenses rules.

Where trade suppliers give gifts cards to trade customers, the gift cards are income of the trade customers equal to the amount of the face value of the cards.

Where you or your customers provide gift cards and vouchers to employees, then more rules come into play. Inland Revenue now distinguishes between so-called ‘open loop cards’, prepaid cards co-branded with a credit card (e.g, Prezzy cards), and ‘closed loop cards’, prepaid cards only accepted by certain merchants (e.g, Mitre 10 gift cards).

Currently where gifts cards are provided to employees, Inland Revenue treat open loop cards as being subject to PAYE, and closed loop cards subject to FBT where such cards are provided to employees. However, as many employers have been treating open loop cards as being subject to FBT, Inland Revenue have stated they will not seek to apply resources to correct taxpayers on this. Changes to the law to allow this treatment are expected next year.

This is a focus area for Inland Revenue, in particular the tax treatment taken by customers who receive gift cards. With the upcoming changes to the tax treatment, we’ll keep you informed.

For more information, refer to the Guide on gift vouchers and gift cards 

Reach out to Kindred.Co if you would like to discuss your gift giving to clients.