The season of giving is upon us once more, and lo and behold, at this time of year, even HMRC gets in on the goodwill act.
There are a number of small Christmas tax breaks available to businesses on festive gifts and celebrations, so if you’ve splashed the cash on your clients and employees this December, it’s well worth checking what you might be able to claim on expenses.
In this blog, we’ll look at the three main ways in which you or your employees can claim a little festive bonus from the tax man…
1 A tax-free Christmas party
As an employer, you can spend up to £150 per head on staff functions throughout the year as a tax-free benefit for employees. Assuming your staff Christmas party is the only such function of the year, then you can put on quite a spread!
There are of course, some restrictions to point out. First of all, that £150 is not an allowance, it’s a firm limit - and if you overspend by even a pound, the whole £151 benefit becomes taxable.
Similarly, if you have two parties a year (perhaps a summer occasion and a Christmas do), a combined spend over £150 will see one of the parties (the cheaper of the two) become taxable in full.
For example, if your summer party cost £60 per head and your Christmas party cost £120 per head, you’re liable to pay tax on the full cost of the summer event - not just the £30 ‘over budget’.
It’s worth noting too, that for the tax exemption to take hold, the party must be for all staff - not just Directors or Managers. Don’t worry if you’re operating a business with multiple offices across the UK or beyond though, in this case all staff refers only to those in the location of the party.
If your business operates with certain divisions and departments, then you’re also entitled to hold separate parties for certain divisions - just as long as everyone within that division is invited.
2 A gift-wrapped tax break on client gifts
A small gift for clients, customers and prospects at the end of the year can be a nice way to say thank you for another year of support - as well as serving as a good marketing ploy.
And, as long as you haven’t gifted your clients anything else during the year, you’ll be able to spend up to £50 tax free on every customer.
Note that the gift must represent some kind of advert for your business, so it’ll likely need to be something branded. Even so, it can’t be food or drink (or tobacco), unless they happen to be samples of your own products.
3 Tax-free stocking fillers for staff
If you give your staff a Christmas bonus, it counts as taxable earnings - but give them a small gift instead and it’s usually tax free.
‘Trivial’ gifts under £50 are all exempt from tax, just so long as they aren’t part of your employee contract, given in place of salary or given as a reward for performance.
Chocolates, wine or flowers would therefore usually be fine, and you can surprisingly also give store gift cards. Just make sure the cards or vouchers you give are not exchangeable for cash - otherwise they will be deemed taxable and also subject to National Insurance.
In all the cases highlighted above, remember to keep evidence of your spending to support any expenses claim. As much as it’s nice to receive post at Christmas time, you don’t really want a letter from HMRC spoiling your party!
We’ll be happy to help you keep on the right side of the law - so if you’d like to find out more about tax breaks on gifts for staff and clients, just get in touch on 0121 667 3882 or firstname.lastname@example.org
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