Chirstmas parties and gifts – what can I claim?

It’s that time of year again – Christmas! 

Every year we get asked questions about the rules for entertaining & gifts for clients and staff so that you stay on the right side of HMRC.

As always if you any questions please get in touch before you buy gifts etc.  that way we can help prevent any nasty surprises with a gift becoming taxable or disallowed.

Staff Christmas parties

Its been a long year everyone deserves a night out and staff parties are often seen as a good way of rewarding staff and celebrating.   As always there are rules you need to remember

Christmas parties can be a great tax-free benefit for employees as long as you follow the rules . . . .

1. The party must be open to all employees, or to all at a particular location.
2. The total cost of all staff parties or functions within a year must not exceed £150 per head. So if you have a summer BBQ and a Christmas party the total you spend for both must be £150 or less. If you spend £80 on the Xmas party and £80 on the summer BBQ then one will be taxable. 

Key points to remember:

• The cost per head includes partners or guests of employees attending so be sure to include in the head count when calculating – this means you can spend more!
• The £150 includes VAT, as well as any costs such as transport or accommodation provided
• If you go over £150 then it becomes taxable, and your employee will pay tax on it through P11ds
• If you are VAT registered, we will claim the VAT back

To help us out let us know how many attend your party so we can check if it meets the tax free criteria.

Client entertaining

Sadly client entertaining is never an allowable deduction for tax purposes even though it feels like it should be as everyone does it – VAT cannot be reclaimed. Remember that if clients are invited to the Christmas party, you cannot reclaim all the VAT incurred and must apportion the costs between the members of staff and clients.

Gifts and rewards

Everyone likes to receive presents and it’s a nice way to say thank you to staff and customers.

Client or customer gifts

Business gifts are allowable as a tax deduction if they meet the following criteria::

1. The total cost of gifts to any one individual over a 12-month period does not exceed £50.
2. The gift carries a clear advert for the business.
3. The gift is not food, drink, tobacco, or exchangeable vouchers.

You can still pay for these items through the business, but we won’t claim the VAT back and they will be disallowed when your corporation tax is being calculated.  So, feel free to buy gifts for clients but remember the rules.

Christmas bonus for staff

If you are giving staff cash gifts and bonuses, then they are treated as normal pay and are subject to tax and NI through the payroll as if they were additional salary.  

Gifts to staff

Gifts are in many cases can be treated as exempt if they cost less than £50. This is on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial that it would not be worth pursuing.

Using the trivial benefit exemption gifts can be provided to employees as often as you like during the year provided…

• The cost of providing the gift does not exceed £50 per benefit (or average of £50 per employee if provided to a group of employees and it is not possible to calculate the exact cost per person)
• The gift is not in reward for service or performance
• The gift is not cash or cash voucher – this is confusing as it can be a gift voucher e.g. John Lewis or Amazon

Directors

Directors can benefit from the trivial benefit exemption but there is a limit of £300 per director per year.  It must be paid for direct from the business account not reimbursed.

Anything over these limits will need to be declared on a P11d and staff will be taxed on them which will take away some of the goodwill the gift is meant to create.

As always if you need more advice or have any questions please get in touch alison@simplybalancedsolutions.co.uk

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