Can you be tax efficient at Christmas?

by Gavin Hooker

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As December approaches and the dark nights roll in, we thought it would be helpful to summarise all the key tax benefits you can use over the festive season to ensure you have a very tax efficient Christmas!

The annual Christmas party is on everyone’s mind and it provides a perfect opportunity to reward employees for all their hard work. Luckily, HMRC acknowledges Christmas celebrations as an important motivator in the workplace, which is why there are incentives in place for limited companies to spread some festive cheer!

Christmas Parties

Expenditure on annual parties for staff is tax allowable for the business and not taxable on the attendees provided the costs are £150 per head or less (inclusive of VAT). The cost of events can include food, drink, tickets for entry, accommodation and a taxi fare home! For VAT registered businesses, the VAT can be reclaimed to the extent that it relates to directors or employees (but not their partners).

In order to qualify for Corporation Tax relief and VAT reclaim, the event must be open to all employees. If you do not have any employees, as directors are included as attendees, this can be a nice opportunity for the tax man to contribute towards an enjoyable night out or weekend away for the owner and their partner!

It is also essential to note that this is an annual allowance, but you can use it how you feel fit Whether you choose to throw a summer event, a festive party, or both, the combined cost (per person) of all parties in a single year cannot exceed £150.

Gifts to Staff

For gifts to employees, the new trivial benefits rules cover the small seasonal gifts such as a turkey, a box of chocolates or a bottle of wine but on top they also cover all gift vouchers for staff.

Trivial benefits are gifts that cannot exceed £50, be part of an employment contract or be a reward. If these don’t apply, the company would get tax relief on these and there would be no personal tax to pay. Just make sure you don’t spend more than £50 per staff member otherwise the whole lot is taxable!

For any benefits that have a cash value, they would be classed as a benefit which would mean both the employee would have to pay personal tax on the cash value and the employer would have to pay National Insurance via a P11D.

Gifts to Customers

In most scenarios, gifts for clients are treated in the same way as client entertainment in that this is not tax deductible and it is not possible to reclaim VAT on this expenditure. However, there are exceptions if the gift is:

  • Branded or viewed as an advertisement for the business, such as a branded umbrella or stationery
  • The gifts per client amount to £50 or less for the tax year
  • The gifts are not food, drink, tobacco or vouchers

Remember for companies, even if the gift is not tax deductible, provided it is for business purposes then please put it through the company books – it is far better for the company to pay for gifts with no tax relief than for a director to pay the cost out of his taxed income!

If you are considering gifts at Christmas and are unsure of the tax treatment or want to know how this will affect your business, please contact us.

The content in this blog is correct as at 2 November 2021.

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