Christmas is fast approaching and It’s the time of year when many business owners are feeling generous. If you’re thinking of treating your team or clients to a meal, night out or a gift this Christmas, there are certain tax rules you should be aware of. Here we will outline the rules so that you and your employees don’t end up paying extra tax!
Christmas Gifts to Clients
At Christmas time, many business owners like to give their customers and clients gifts to show their appreciation. Gifts to clients are generally considered “entertaining” and you usually cannot claim tax relief or reclaim VAT unless the gifts comply with all of the following:
- The gift contains your businesses logo/advertising. E.g. Pens, diaries, notebooks, keyrings etc. with business branding
- All gifts given to any one client within the tax year amount to £50 or less.
- The gift is not a voucher, food, drink or tobacco.
Christmas Gifts to Employees
Christmas gifts to employees are generally considered staff entertaining or trivial benefits and the tax implications follow these rules:
- If the gift has a cash value, for example is a voucher. The cash value will need to be reported on the recipient employees form P11D. This means that the employee will pay income tax on the cash value of the gift and the employer will pay NIC.
- If the gift cost less than £50 at purchase, is not cash or voucher, is not a reward for a job well done and is not part of your employee’s employment contract, then the gift is tax free for both you and your employee. Check out our previous blog on Trivial Benefits for more information about this.
If you decide to give your employees a Christmas cash bonus, it will be taxed as additional salary and PAYE and Class 1 national insurance will need to be deducted.
Unfortunately, Christmas parties held for clients, contacts or prospects count as entertaining and no tax relief can be claimed for these costs. VAT on business entertaining can also not be reclaimed. However, this is not the same for parties thrown for your staff!
There is an annual deductible allowance for staff parties of £150 per head. This allowance applies when these rules are followed:
- The event is an annual event
- The event is open for all employees to attend
- The total cost of events amount to no more than £150 per head, if it goes over this the full amount will be taxable on both employer and employee.
- If you hold more than one event, the total of the events must not amount to over £150 per head. If the total cost of all events totals to more than £150, the whole cost of the event which took you over the £150 limit is taxable.
Gifts to charity at Christmas
Christmas is a time that many people decide to give to gifts to charity. Whether you are self-employed, or you make donations through a limited company, tax relief is claimable. Please check out our recent blog for a more in-depth look at the rules surrounding tax relief on gifts to charity!
Get in touch!
It can be tricky trying to get your head round what expenses you can and can’t claim tax relief on. If you’d like more information, or some help and advice on the tax implications of giving gifts this Christmas, get in touch! As accountants and Chartered Tax advisers, one of the team here at Rosslyn Associates can help with your queries, give us a call on 0131 445 1825 or email firstname.lastname@example.org