A Happy Christmas

Posted by Praveen Gupta

A Happy Christmas

No doubt as we get ever closer to Christmas, your thoughts will turn to how to show your appreciation to loyal customers and hardworking staff. But how do you give them a thank you gift without giving the taxman an early Christmas bonus at the same time?

Don’t mention The Christmas Party!

HMRC will allow you to spend £150 per year tax-free per head on annual staff functions, such as a Christmas party.

The glad tidings:

  • Any money the company spends by inviting partners or spouses of employees is eligible for tax relief. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per employee attending. Parties provided for client or third parties, however, will not be eligible for tax relief.
  • As a small company, you are still able to claim up to £150 per employee for any Christmas celebration, even if just two or three employees attend. The event must, however, be open to all staff (or all staff in that location if you have multiples branches or departments).
  • Any money spent on non-employees is viewed as entertainment that means the VAT on that proportion of expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests (unless a charge is made to non – employees in which case all VAT is recoverable).
  • If the entertainment is only for the partners or directors of the business then the VAT incurred is not input tax and cannot be recovered. But, if they attend a party with regular employees, then the tax is seen as input tax and is recoverable.
  • Do not exceed the £150 per person limit as this will mean the entire amount is disallowed, not just the excess over £150.

A gift to a client

HMRC allows you to give a gift worth up to £50 to a client in each tax year.

  • It must be business related; it cannot be drink, food, tobacco or an exchangeable voucher.
  • The gift must also carry a clear advertisement for your business; otherwise it would be classed as entertainment expenses.
  • If the cost of gifts given to a person in 12 month period total more than £50 (excluding VAT) and you have claimed the input VAT, you will have to charge output VAT on the total cost of the gifts.
  • Output VAT does not need to be accounted for where a gift is a free sample of the business’s product. Where free samples are given for marketing purposes the samples are also eligible for corporation tax relief.
  • The £50 budget includes the gift-wrapping so go easy on the wrapping paper. If you do go over the limit the gift will be disallowed and liable for tax.

A gift to staff

It’s worth remembering that all Christmas gifts to staff are classed as taxable benefits, except if they’re deemed trivial. Only then are they exempt from tax.

  • An item is classed as trivial only if it costs £50 or less to provide. The gift cannot be cash or vouchers exchangeable for cash and cannot be in return for a salary sacrifice or work carried out.
  • You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.
  • A bottle of wine, a small box of chocolates or a turkey would, therefore, be examples of a trivial gift. However, a box of wine or a food hamper are likely to exceed the £50 limit  and as such are completely taxable.
  • All gifts of money, such as bonuses or cash vouchers, must be put through the payroll system and are subject to tax in the same way as a salary payment.

The good news is that this Christmas you really can have everything that you wish for -treat your hardworking staff, show your appreciation to your loyal customers and leave the taxman off the gift list at the same time. So there’s no excuse for being a Scrooge this year!

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