Christmas is a time for giving and is of course a great time to reward staff and customers. But unfortunately when it comes to tax deductions, HMRC is far less generous than Father Christmas and there are certain clauses (other than Santa Claus!) that you need to bear in mind.
1. Christmas parties The cost of a Christmas Do (or other annual function) is an allowable tax deduction for businesses, but not for sole traders or business partners of unincorporated organisations. There will be no chargeable taxable benefit for the employee providing:
– The party is open to all employees, or all at a particular location if you are a multi-site company
– The average cost per head doesn’t go above £150 (including transport and accommodation if applicable). If the amount goes over £150, staff will be taxable in full on the total cost per head.
NB: VAT is recoverable on what you spend on staff, but not for their partners so input VAT will need to be apportioned if you allow staff to bring their other halves.
2. Client entertaining: At Christmas, and throughout the year, client entertaining is NOT an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
3. Christmas gifts to customers: These are only allowable as a tax deduction if the total cost to one individual is less than £50 (annual limit). The gift must bear a conspicuous advert for the business (so a logo etc must be present). And the gift mustn’t be food, drink, or tobacco (unless they are samples of your products) or gift vouchers. (Bah humbug!)
4. Christmas gifts to staff: In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial it is not worth pursuing. HMRC has conceded a seasonal gift such as a turkey, bottle of wine or box of chocolates can be exempt. However, a case of wine, a bottle of fine wine or a hamper is unlikely to be considered trivial. Gift vouchers to staff will be subject to tax and National Insurance.
5. Staff Christmas bonuses: Like any bonuses throughout the year, these are subject to PAYE and NI as additional salary.
6. Inheritance tax issues: Bear in mind all individuals have an annual exemption of £3,000 for gifts. Gifts of less than £250 a year to each individual are exempt. Any gift above these amounts could be considered a Potentially Exempt Transfer which is exempt if the donor survives for seven years. All gifts to spouses are exempt for Inheritance Tax purposes.
For more information, please contact us:
01257 255521 info@ cma-accountancy.com