This piece is being written with S46/47 Income Tax Act 2005 and S1299/1300 Corporation Tax Act 2009 in mind. HMRC’s manuals, BIM45032 and BIM45071 are also considered.
There is a handful of inaccurate information on the net associating free samples with entertainment expenses. The fact is the cost of free samples given to the public for advertisement purposes is fully deductible. This is basically because the cost of giving away goods for the purposes of promoting those goods is not entertainment expenditure and should never be classed as such.
BIM45032 provides more explanation:
– The cost of free samples are tax deductible if:
1.They are what the business/trade normally produces or supplies;
2. They are provided in the ordinary course of the trade either for payment or free of charge in order to advertise to the general public.
In 1 above, HMRC provides a good example –
where a sweet manufacturer gives away a free sample of a new chocolate bar, the expenditure is not treated as hospitality. However, if the same manufacturer produces a special selection of sweets only to be used as gifts for customers then this is not part of the normal course of trade and the expenditure is business entertainment and is not allowable.
And in 2 above, the condition is satisfied regardless of whether the samples are distributed randomly (eg on the street) or selectively (eg targeting audience at a seminar) as long as the recipients have a role to play in promoting the product.
If you need additional information and/or assistance with any part of the above, get in touch but be aware that my professional time is not free.