Goodwill gesture/compensation for a client

katy123

Hi, we run our own LTD company and realised that we made a mistake on a client's order. The client is a regular client so it makes sense to send them a gift card of some sort. Just wondering if the cost of the gift card is an allowable expense for corporation tax or is it treated as entertainment? Many thanks

Mistral001

Just for information, a "goodwill gesture" is actually a legal term for a payment that does not admit liability. It is not compensation. The client could still sue for damages for breach of contract after receiving a goodwill gesture payment.

katy123

Mistral001 wrote: »

Just for information, a "goodwill gesture" is actually a legal term for a payment that does not admit liability. It is not compensation. The client could still sue for damages for breach of contract after receiving a goodwill gesture payment.

Yes, I accept that the client can sue even after receiving a goodwill gesture. I just thought it sounded better to call it a goodwill gesture rather than refer it to a compensation

00ec25

entertainment since although you expect to maintain an ongoing relationship with the customer as a result of dispensing "goodwill", it is not given in exchange for anything from the customer, so is a business "gift"

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45065

rhysadams

Could you offer a credit on account? May be to use against a future order?

martindow

Yes, I think I would too offer a credit on their account. I find that after things have gone wrong in some way, provided you have done your best to sort it out as quickly as possible, clients are usually surprisingly appreciative. Offering a credit of some sort adds to this impression of being a good supplier.


As a purchaser of products or services, the real test of a supplier is seeing how they deal with and attempt to rectify problems. If dealt with well our mistakes can sometimes end up being an advantage to our businesses.

cedrag

katy123 wrote: »

Hi, we run our own LTD company and realised that we made a mistake on a client's order. The client is a regular client so it makes sense to send them a gift card of some sort. Just wondering if the cost of the gift card is an allowable expense for corporation tax or is it treated as entertainment? Many thanks

katy123 wrote: »

Yes, I accept that the client can sue even after receiving a goodwill gesture. I just thought it sounded better to call it a goodwill gesture rather than refer it to a compensation

I'm not a fan of fudge & muddle.

Better to discuss matters with the client in an attempt to come to an agreed, mutual resolution to prevent possible future costly and lengthy litigation against you.
(and if they then still try, at least you have a defence/mitigation)

Process the compensatory payment as a discount on the original order.

Mistral001

00ec25 wrote: »

entertainment since although you expect to maintain an ongoing relationship with the customer as a result of dispensing "goodwill", it is not given in exchange for anything from the customer, so is a business "gift"

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45065

Entertaining a client is not an allowable expense.

I would treat it as a discount.

00ec25

Mistral001 wrote: »

Entertaining a client is not an allowable expense.

I would treat it as a discount.

and HMRC would treat it as business entertaining - as per the link

I am aware bus ent is disallowed, that is why it is important to understand how HMRC would see it

Mistral001

00ec25 wrote: »

and HMRC would treat it as business entertaining - as per the link

I am aware bus ent is disallowed, that is why it is important to understand how HMRC would see it

Neither my chartered accountant or HMRC treated the two good will gesture payments of this type that I have paid as gifts or entertainment.

OP the link that 00ec25 gave mentions discounts.

katy123

Mistral001 wrote: »

Neither my chartered accountant or HMRC treated the two good will gesture payments of this type that I have paid as gifts or entertainment.

OP the link that 00ec25 gave mentions discounts.

I can see why it is seen as entertainment but it is interesting to see from a practical point of view that your accountant and HMRC did not see your good will gestures as entertainment. Just out of interest, was it an allowance expense? Thanks