BIM45080 - 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 鈥榩rize鈥� for the highest number of sales. These prizes are not normally in cash, but may be holidays, luxury items or attendance at sales 鈥榗onventions鈥� at which little work is done.

Expenditure satisfying all of the following conditions is allowable:

  • the reward has been genuinely 鈥榚arned鈥� 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 鈥榚very one is a winner鈥� 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.