Companies regularly offer gifts to their employees for a variety of occasions: end-of-year celebrations, personal events or professional rewards. This common practice raises important questions about accounting and VAT treatment. You need to comply with precise tax rules to avoid any tax reassessment and optimize the management of these benefits in kind.

What is VAT accounting for gifts to employees?

Accounting for employee gifts involves correctly recording these expenses in your accounting records, while applying the appropriate VAT regime. These gifts constitute benefits in kind, which may be subject to different tax treatments depending on their value and nature. This accounting operation requires a precise understanding of the tax rules in force.

The tax authorities distinguish several categories of gifts according to strict criteria. Customary gifts benefit from preferential treatment under certain conditions of value and circumstance. Other gifts are considered as taxable benefits in kind, requiring specific accounting and tax treatment. For optimum management, companies often call on specialized professional accounting services.

Tax and VAT treatment of employee gifts

The tax treatment of gifts depends mainly on their unit value and their compliance with article 206 of the French General Tax Code. For gifts with a value of up to €169 inc. VAT , you can benefit from an exemption from social security contributions and tax deductibility, provided they retain their customary character.

As far as VAT is concerned, you can reclaim VAT on the purchase of gifts provided you meet three cumulative conditions: the value must remain within the authorized limits, the gifts must have a direct link with the company’s professional activity, and the applicable VAT rate varies according to the nature of the gift (20% for most goods, 10% or 5.5% for certain specific products). However, VAT recovery is not available for personal gifts with no business connection, or gifts that clearly exceed normal practice.

Gifts exceeding the €169 threshold lose their customary status and are subject to social security charges, constituting a taxable benefit in kind for the employee. In this case, VAT treatment becomes more complex: recovery may be called into question, and the company must apply the system for benefits in kind, requiring particular care in accounting.

Thresholds and limits

The main limit is €169 incl. VAT per employee per year. This limit applies to all gifts given to the same employee over a calendar year, and is calculated cumulatively.

To illustrate this calculation: if you offer 3 gifts of €50 and 1 gift of €30 to the same employee, the total reaches €180 and therefore exceeds the authorized threshold. In this case, all the gifts are subject to social security charges.

You must also comply with certain qualitative conditions. Gifts must be of an exceptional nature and linked to special events: end-of-year celebrations, births, weddings, retirements.

As far as the unit value is concerned, the tax authorities generally consider individual amounts of no more than €50 to €80 per gift to be acceptable. Above these amounts, even if the annual threshold is respected, the customary nature of the gift may be called into question.

A distinction must be made between individual gifts and group benefits. Collective events (end-of-year meals, seminars) come under a different regime and do not count towards the €169 threshold per employee.

Accounting procedure

Gifts are generally recorded in an expense account. You should use account 6238 “Other personnel expenses” for gifts intended for your direct employees, or account 623 “External personnel” when the gifts concern external service providers or temporary staff.

Let’s take the example of a gift costing €150 incl. VAT at 20% (i.e. €125 excl. VAT + €25 VAT). The accounting entry would be as follows:

– Debit account 6238 “Other personnel costs”: € 125
– Debit account 44566 “Deductible VAT on other goods and services”: € 25
– Credit account 401 “Suppliers”: € 150

This entry assumes that the conditions for deductibility have been met (gift up to €169 inc. VAT). If the threshold is exceeded, VAT becomes non-deductible and must be included in the cost of the gift in account 6238.

You must keep all supporting documents: purchase invoices, list of beneficiaries, nature and value of gifts distributed. This documentation will be essential in the event of a VAT tax audit.

Rigorous bookkeeping also means keeping detailed records to monitor compliance with thresholds for each employee. This makes it easier to justify the deductions made, and ensures full traceability of the benefits granted.

Common mistakes to avoid

The most common mistake is to exceed the €169 threshold without adapting the tax treatment. This leads to an adjustment of social security contributions, and may jeopardize VAT deductibility. Failure to comply with this limit automatically transforms the gift into a taxable benefit in kind.

Some companies neglect to keep supporting documents. This negligence can be costly in the event of a tax audit, as the tax authorities require precise proof of the reality and value of gifts. The absence of appropriate documentation exposes the company to tax reassessments and the questioning of deductions made.

Another error concerns the qualification of gifts. Not all benefits granted to employees constitute customary gifts. This distinction has a direct impact on tax and social security treatment, in particular the application of compulsory contributions.

Another pitfall is the confusion between different tax regimes. The tax rules applicable to gifts differ from those for classic compensation structuring. This confusion can lead to errors in accounting and VAT treatment.

Practical tips for optimum management

Establish a clear policy on employee gifts. This policy should define the occasions, maximum amounts and terms of distribution. Rigorous management of these internal procedures ensures tax compliance.

Plan your gift purchases in line with annual thresholds. This avoids unintentional overruns and optimizes tax treatment. Make sure that your accounts correctly reflect these transactions.

Keep abreast of regulatory changes. Tax rules are evolving and may have an impact on your practice. Maintain the confidentiality of your accounting documents while complying with transparency obligations. For complex situations or large amounts, don’t hesitate to ask about specific VAT issues that may arise.

Accounting for gifts to employees requires a methodical approach and compliance with precise rules. Rigorous management enables you to benefit from tax advantages while avoiding the risk of tax adjustments.

Practical example of an accounting entry

To give you a concrete example of how to account for a gift to an employee, let’s look at a practical example: the purchase of a gift worth €120 including VAT (i.e. €100 excluding VAT + €20 VAT) for a service anniversary.

The accounting entry is as follows:

To ensure tax compliance, you must:
1. Keep the original supplier invoice
2. Draw up and archive a nominative list of beneficiaries
3. Document the nature and occasion of the gift

A crucial point is to set up a tracking system to monitor compliance with the annual threshold of €169 per employee. This can take the form of an Excel spreadsheet or a specific module in your accounting software, where you record each gift offered with its date, value and beneficiary. This traceability will protect you in the event of a tax audit.