The tax rules of Christmas gifts and celebrations

At the end of the year, it is great to be able to treat your clients and staff with some festive Christmas treats. But even though its Christmas HMRC still have rules which are applied to giving gifts.  Here we clarify the essential information on the tax rules of Christmas gifts and celebrations. We have detailed below how gifts can be given and the tax implications so you can remain compliant and not get a nasty surprise in your Christmas Stocking!

Christmas Cards

You can send Christmas Cards as a tax-deductible expense. Many companies do not send cards in favour of donating to a charity. Your limited company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC). Deduct the value of the donations from your total business profits before you pay tax. Find more information here on donating to charity.

A £50 gift to yourself and your staff!

If you are a Limited company, then you can give yourself a gift at Christmas as the company is giving the gift and not you! You can also give gifts to your employees. The limit is £50. This counts as a trivial benefit exemption so no Tax or NI is payable. But this does not apply to cash – so it must a gift. Non-cash vouchers up to £50 may be exempt under the trivial benefit rules. Where the voucher exceeds £50, you will need to report these on a P11D form to HMRC.  So, a couple of bottles of wine and some chocolates would count as a trivial benefit. Unfortunately, gifts to employees are not a tax-deductible expense for the business.

If you spend more than £50

Buying a gift that costs more than £50 (and this includes delivery charges) will count as a taxable perk for the employees that receive it. They will then have to pay tax and you as the employer will have to pay National Insurance. For example, if you were to give a £60 gift it will cost you a total of £85 because of the tax and NI due.

The gifts must carry a clear advertisement for the business (e.g. with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco (unless they are your business) or vouchers. Non-promotional gifts and larger gifts are classed as entertaining and are not tax-deductible as an expense.

VAT and gifts

If you are not using the Flat Rate Scheme you are able to reclaim the VAT incurred on purchasing the gift.

But you may, however, have to account for VAT on the value of the gifts if the gifts received by the recipient are more than £50 in a year. If a gift is exempt or zero-rated (i.e. a book) you will not have to account for the VAT.

Gifts for your clients – direct tax deductions

The gifts must carry a clear advertisement for the business (e.g. with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco (unless they are your business) or vouchers. Non-promotional gifts and larger gifts are classed as entertaining and are not tax-deductible as an expense.

Cash bonus

Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to:

-Add the value to your employee’s other earnings

-Deduct and pay’ Pay As You Earn’ (PAYE) tax and Class 1 National Insurance through payroll

Christmas Party

To be exempt, the party or similar social function must meet the following criteria:

-£150 or less per head (this includes partners)

-Annual, such as a Christmas party or summer barbecue

-Open to all your employees

The costs can include food, drink, tickets to events, accommodation and taxi fare home.

If your business has different locations, then an annual event that’s open to all your staff still counts as exempt. You can also arrange Christmas events for different departments if all your employees can attend one of them. If you hold more than one annual event, so maybe a Summer event as well as Christmas, if the combined costs of the events are no more than £150 per head, they are still exempt.

The VAT is reclaimable, but only for the staff costs, not partners.

Salary sacrifice arrangements

You do have to report how much social functions and parties are worth to each employee if they are a part of a salary sacrifice arrangement.

But we have no employees just directors!

If your business does not have employees but just one of more directors, then the rules are different. The cost of providing entertainment only to directors or partners does not qualify for tax relief or VAT deduction

If the event takes place away from the usual place of work and as part of a business trip, for example, to see a client, then the meal would be eligible.

Any VAT suffered on the cost of travel, accommodation and meals can be reclaimed. The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and subcontractors who are part of the team and treated as employees.

 Be less Scrooge at Christmas!

As an additional staff benefit which costs nothing and attracts no tax, why not allow an extra half a day’s holiday for Christmas Shopping?

-Consider extra time off to allow parents or grandparent to watch the school play.

-Maybe you could arrange a team- building day with a local charity to help at a Christmas event in your area.

-This all adds to building staff morale and shows you are a caring employer!

 

Needs more help and advice?

Call us to check if your circumstances do not fit what we have discussed in this blog. We are always happy to help.

There are some useful links to the HMRC website here –

Expenses and benefits: gifts to employees

Expenses and benefits: entertainment 

Specific deductions: entertainment: gifts: overview

 

Align your business with a charity

As a business, it’s very important to give back. There are many ways you can support charities and projects through your business which can be beneficial to your business as well as knowing you are helping others.

Who do you want to support?

Consider carefully the type of charity you want to support and the best way to get the most out of the relationship between you and the charity. What kind of charity would be best aligned with your business?

  • For example – an optician might support the RNIB
  • A wealth and retirement planning company might support AGE UK

If you are a UK wide company or a business serving customers internationally you will want to think carefully about a charity which has that coverage.

If you are based in a local geographical area, getting involved with a local charity or project gives you the opportunity to give something back into your local community. It also raises your profile in the area.

We have chosen a few local charities to support and these include – Level Trust, Keech Hospice Care, DLDD Trust ( Don’t Let Dunstable Die) and Mary Seacole Housing Association. We have organised quiz nights, bingo nights, cheese and wine evening, pancake races and coffee mornings. We also support events as much as possible by attending or sponsoring or both. Our staff are also encouraged to engage and support our chosen charities.

Building your business into the community

Community life as we used to know it is dwindling and businesses whatever their size can make a big difference to a charity or projects by getting involved.

Your business is part of the community and being part of a community is vital for any business. We live in a world which seems so materialistic at times. With so many small shops and business closing all the time it feels as if the community spirit has begun to close too. Through supporting local events, projects and charities, you will understand the needs of the community and be able to find ways to meet them.

It’s hard to buy that kind of market research anywhere, but almost impossible for many businesses. Customers are more likely to support businesses they feel are engaged and understand the needs of others.

It can be difficult to sustain a business but being involved with a charity is one way to ensure that your business thrives in your community as you are helping and doing something to build a community!

You could either give ad-hoc support to several or one charity or choose one charity per year and any fundraising or support goes to that charity and then change it annually.

The amount of time will depend on how much you have!

Being involved provides you with additional marketing opportunities.

Examples of how your business can support charities or local projects and how to maximise the publicity.

Take part or organise an event

For example – a race, abseil, skydive or organise a quiz, race night or party this will provide you with additional marketing and PR opportunities. Plus, brand awareness of your company.

Publicity for you and the charity

Include your charitable involvement in newsletters, brochures, signs, displays and adverts, press releases and inform local radio.

Mention it on your website, profile the charity and the reason for your support add their logo (you must get permission first) and a link to their website. Ask them to reciprocate.

Add to your social media sites and use this as a way of spreading the word about the cause.

Getting involved in high profile causes might attract additional media attention. You might want the charity to add your company name to a project you support or sponsor if the donation is significant.

Ask the charity to add your details in their literature. You can make offers to the charity staff and their users if this is applicable with your business.

Donate a percentage of sales or raffle prizes.

Donating a percentage of sales to a charity often works well – maybe certain months of the year. For example, if you are in health and beauty you might want to donate during Breast Cancer awareness month. Or if you have a business aimed at men you could choose Prostrate Cancer. Consider donating to charities that have an audience aligned with your business. Create a club of people who support the charity and your business. Donating raffle or auction prizes.

Organise an annual event.

Arrange an annual event promoting your company where all the profits from the event go to a local charity- could be a product or service launch or a company birthday or Christmas event.

Create seasonal offers

Create special packages at key times of the year Christmas, Easter that either you sell, or the charity sell on your behalf with profits all or part donated.

Work with charities to find out what support they need.

Charities want to grow their support as much as you do so brainstorm ways with them you can support each other. They expect to give support to businesses in return for their support.