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HMRC internal manual

Business Income Manual

Specific deductions: entertainment: sales incentive schemes

Awards made under a sales incentive scheme that are a way of rewarding performance are not business gifts.

Typically, a scheme of this kind has a structure of awards available to sales staff (who may or may not be employees). Awards may be dependent upon a particular level of sales or alternatively there might be a ‘prize’ for the highest number of sales. These prizes are not normally in cash, but may be holidays, luxury items or attendance at sales ‘conventions’ at which little work is done.

Expenditure satisfying all of the following conditions is allowable:

  • the reward has been genuinely ‘earned’ by the recipient
  • there is an obligation upon the trader to provide the gift, and
  • the gift is provided as part of a genuine business scheme

As far as the first condition is concerned, it is necessary to show that there is a direct relationship between the task and the reward - that there is a fair commercial exchange. Performance must be a genuine requirement and not merely a pretext for the award. Schemes that ensure ‘every one is a winner’ are unlikely to be genuine.

The last two conditions are normally fulfilled where there is a formal scheme in place and the rules are made known to all eligible persons.

For information about the tax position of the recipients of sales incentive awards, see BIM45090.