There’s no better time to be nice to staff and customers than at Christmas. There are some decent tax reliefs available to add some festive spirit! However, it can be easy to get carried away and be left with a big red face later on when HMRC and their elves inspect which taxpayers should be put on the naughty list. There are certain (Santa) clauses you need to keep a close eye on during the holiday period.
1. Christmas parties
The cost of these or another annual function is an allowable tax deduction for businesses. This doesn’t however apply to sole traders or business partners of unincorporated organisations (but it will apply to their employees). There will be no chargeable taxable benefit for the employee as long as:
- the party or social event is open to all employees, or all at a particular location if you are a multi-site operation. If the event is only open to the Directors, however, a tax charge arises.
- the cost per head isn’t more than £150 including VAT, transport or accommodation provided.
- Beware though – the £150 isn’t a tax allowance! If you provide two or more annual parties or functions and the £150 limit is exceeded, a tax charge arises (and not just on the difference) of the additional one(s) in full on a cost per head basis.
- Further, where staff bring guests along to the party and you meet their costs too then if the cost per head exceeds £150, there is additional tax.
- Note: total cost should be divided by the total number of employees and guests attending to arrive at cost per head.
- Additional tax liabilities can be dealt with by either (a) agreeing a PAYE settlement agreement whereby the employer agrees to pay the extra tax or (b) reporting on the individual’s P11D as a benefit in kind.
- VAT is recoverable on staff entertaining expenditure but not for guests so input VAT will need to be apportioned.
2. Client entertaining
This is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
3. Business gifts to customers
These are only allowable as a tax deduction if the total cost to one individual per year is less than £50, the gift bears a conspicuous advert for the business and it isn’t food, drink, tobacco (unless they’re samples of your products) or exchangeable vouchers.
4. Gifts to staff
HMRC will consider a benefit exempt if it is deemed to be a trivial benefit. For it to be considered a trivial benefit, it must cost £50 or less, and not be part of the employees contract or a reward for performance. It must not be cash or a cash voucher. Therefore seasonal gifts such as a turkey, bottle of wine or box of chocolates are likely to be exempt.
Cash vouchers are subject to tax and National Insurance. Non-cash vouchers up to £50 may be considered a trivial benefit and therefore exempt provided they are not given as a reward for performance.
6. Christmas bonuses
These are subject to PAYE and NI as additional salary.
If you want to discuss any of the points raised in this blog please get in touch with me here, or:
0141 886 6644
The information in this blog should not be regarded as financial advice. This is based on our understanding in December 2018. Laws and tax rules may change in the future.