A gift for a contractor

A gift for a contractor is a way to express satisfaction with fruitful cooperation and strengthen business ties. After all, we all like to work in a friendly atmosphere, and gifts are one of the best ways to thank us for our joint business activities. Gifts for contractors given on the occasion of Christmas, Easter and even New Year are also very popular. However, many entrepreneurs do not know how to approach gifts from a tax perspective. Ultimately, at the end of the day, all costs must add up in the accounting. So how do you settle Christmas gifts? Are gifts for contractors an expense? What about gifts for customers? Let's check!

Gifts for contractors 2023

Business owners who decide to give gifts often wonder whether gifts for customers are a tax expense and what the correlations are, such as:

• gift for a contractor and PIT,
• gift for the customer and costs,
• gifts for contractors and VAT.

Interestingly, gifts can also be included in tax-deductible costs, but much depends on their value, how many were given, and with what intention, i.e. for what purpose they were given. In many respects, these are complicated matters because there are many ambiguities in the regulations due to the rather difficult way of categorizing corporate gifts. After all, there are as many ideas for gifts for contractors as there are entrepreneurs. Therefore, the costs of obtaining income in such situations should be considered individually. It is good to use an experienced accounting office that offers online accounting services. This solution is extremely convenient and allows you to close all the elements HR and payroll services in one place.

A gift for a contractor and the costs of obtaining income in 2023 - the purpose of the gift

However, can a gift to a contractor be included in tax-deductible costs? It depends. Whether an entrepreneur can include holiday or special occasion gifts in tax-deductible costs depends on:

• how much the gift cost,
• what is the scale of recipients,
• what is the purpose of the gift.

Let's first pay attention to the purpose for which the gift is given. This may be an issue that puzzles many entrepreneurs because it is quite difficult to define. The main issue is whether the gift is given in order to generate income or secure a source of income, or perhaps the main purpose of a gift is to create a certain image of the taxpayer (create a good image) and create positive relationships with contractors and clients with the hope of maintaining cooperation.

Gifts bearing the company logo and given to a significant number of contractors and customers can be considered as given in order to generate revenue - this is advertising. Such marketing and self-promotional activities are carried out precisely to bring real results related to increasing sales. Therefore, they secure the entrepreneur's source of income. In such a case, they may be deducted from tax costs. This includes, for example, all small advertising items, such as lanyards, pens, mugs and T-shirts.

However, if gifts are intended for a narrow group of clients or contractors and cost much more than symbolic company gifts, they cannot be considered tax deductible costs under the law, because they are representation costs. What does it mean? The entrepreneur gives gifts to improve his image in the eyes of contractors with whom he hopes to continue profitable cooperation and maintain positive relationships. These may include, for example, catering services, purchase of food or beverages, including alcohol.

Gifts for contractors and VAT deduction

So what does the issue of tax costs look like in terms of VAT? In this case, the criterion of the value of the gifts is taken into account. According to tax regulations, all activities that are directly or indirectly related to running a business may be subject to VAT. Due to the fact that giving gifts to contractors and clients is related to running a business, as these are expenses incurred to promote or strengthen business relations with partners, this entitles you to reduce the output tax by the input tax. However, it should be remembered that from a VAT perspective, giving gifts is considered a supply of goods, and therefore requires settlement with the tax office.

However, there are some exceptions. VAT is not charged when:

• the total value of gifts in the tax year does not exceed PLN 100, and the taxpayer keeps records allowing the identification of the companies or persons given to them,
• the unit cost of production or the unit purchase price of the goods at the time of transfer of the goods does not exceed PLN 20 - then keeping records is not necessary.

Gifts for contractors from outside the EU and VAT

There is another issue related to gifts for contractors - many companies cooperate with entrepreneurs from outside the European Union. What do VAT deductions look like in such cases? This situation is very similar to giving gifts to contractors in the European Union. If these are free gifts of low value or samples, they are not subject to VAT. However, if their value is higher, they can be settled based on the VAT rate settled for exports. However, the entrepreneur must have appropriate documents confirming the shipment of such goods.

Gifts for contractors and tax costs - income tax

Why do we mention income tax in the case of gifts to contractors? Because in this relationship we are talking about the giver and the recipient. While the entrepreneur who gives the gift does not get rich directly from this activity, the other owner of the company, i.e. the contractor or business client, probably receives income in the form of a gift. If we are talking about low-value gifts that fall within the limit of PLN 200, the contractor is not obliged to settle income tax with the tax office. However, gifts whose value exceeds PLN 200 are considered income and in such a situation they must be settled. Whereas a company that gives a gift exceeding the stated value has an information obligation, which involves the need to submit the PIT-8AR declaration to the tax office.

Christmas gifts for contractors as a company expense

Christmas gifts for contractors is a topic that, due to its origins, appears every year. Can gifts given on the occasion of holidays be deducted as tax-deductible costs? Of course, each case must be approached individually, but in the case of such occasional gifts, the same rules apply that apply to giving gifts without a special occasion or holiday. Much depends on the value of the gift and whether the product can be used for advertising purposes or for representational and image purposes. However, it is worth remembering that expensive products with the company logo are not included in the promotional expenses.

If you don't know how to settle gifts for contractors, take advantage of our offer of comprehensive accounting services and online tax consulting. We offer assistance in setting up a company and maintaining current accounting.

FAQ:

1. Can gifts to contractors be settled as tax-deductible costs?

Whether gifts to contractors can be accounted for depends on several factors. First of all, you need to take into account:

• value of the gift,
• number of people receiving gifts,
• purpose of giving.

If gifts are given with advertising and promotional intentions to a large group of partners and their value is low, they can be settled as promotional costs.

2. Do I have to settle income tax on gifts to contractors?

Giving a gift does not involve settling income tax, but in the case of more expensive gifts, the fact of such a gift must be reported to the tax office. People who received such a high-value gift must settle income tax.