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.

 

Increase your profits by building your profile

As accountants, we are always suggesting ways in which you could improve your turnover and profits.

One of the major ways you can do this is by really building your business profile both locally and nationally. Even an online business can benefit from doing this. As a business, we have worked hard to elevate our business in our local area of Dunstable and Luton, throughout the county of Bedfordshire and nationally. Here are some ideas of some of the things you can do to make your business more prominent. We have shared some of the things we have implemented which have worked for us.

Networking

Being part of networking groups and attending events regularly has been beneficial. We have been able to build our brand in this area and we are a known face at events.

For the past 3 years, Suzanne Spicer has been part of the Women in Business (WIBN) Network. This is a networking group for women which meets for a monthly lunch and has one person per business type per group. The advantage is she is the only accountant in the room and has been able to gain referrals from other members for the practice. She is also a member of The Athena Network which works on the same principles.

Spicer and Co are also a member of the Bedfordshire Chamber Of Commerce. This helps support our business in the Bedfordshire area and we have made some meaningful connections through their events.

Our business development director Steve Spicer attends a wide range of events from local lunches to events in London.  Business development is his role. He loves to engage with new clients by building relationships. Attending events has helped to build our brand with the local community.

Where can you find networking events near you?

You can find out about events in your area by checking Google, Find Networking events, Meet Up or Eventbrite. There will be breakfast meetings, coffee morning events, lunch and evening events so decide the time that suits you best and your budget. Also, consider the amount of time you can commit.

Build relationships

Networking is about building relationships. You need to attend regularly to build your business name in your area. Arranging 121’s is really important as this is where you can learn so much about the other person and their business.

Being part of a networking group builds vital support around your business and means you have people to call on when you need help. Over a period of time people get to know you, they then might refer customers to you who need your business.

Start your own event

You might decide to start your own networking event or maybe a professional group that targets your client base or industry.

You will need to source a suitable venue and then market the event. There might be costs involved so consider partnering with other businesses in your area to reduce the costs and share the workload.

You might also decide to run some events to bring your clients together. We do this a few times each year. We find it’s a great way to catch up with clients and thank them for their business.

Speaking at Networking Events

Suzanne has spoken at an event organised by Metro Bank. These events provide you with an opportunity to share your knowledge and expertise. Talk to networking event organisers and try and secure a slot. This isn’t about promoting your business but demonstrating what you know about your industry.

Business Exhibitions

We love attending business exhibitions. This allows us to showcase our business and connect with new potential clients. We often see people we know as well and it’s a great chance to catch up. With a mix of networking, guest speakers and other exhibitors these events are a great way of meeting several new people in one place in one day! 

Check out The 3 Counties Expo which covers Herts, Beds and Bucks. Make a point of researching regional expos, industry-specific expos and London shows. Entry is usually free for visitors. Check them out and decide which ones will work best for your business.

Business Awards

This gives your business a chance to shine! There are local awards, industry awards and national awards. Over the past few years, we have entered them all and been a finalist and a winner!

Awards give your business credibility as they are independently judged. Most awards have a gala final which means you are creating more awareness and publicity about your business.

Suzanne was a finalist in The Best Businesswomen Awards 2019, a UK wide competition. We were also finalists in the FSB awards and SME Bedfordshire awards this year.

In 2018 we were a finalist in The British Accountancy Marketing Awards and The Accountancy Excellence Awards.  We also won SME Bedfordshire Awards – Dunstable Business of the Year 2018

We have also been a sponsor of local awards including the Pride of Houghton. 

Whether you are a finalist or a winner awards do help raise your profile. Awards give you lots of PR opportunities plus it is also great for staff morale!

 Join your industry or governing body

Suzanne Spicer is a member of the Practice Committee of The Institute of Chartered Accountants in England and Wales. Being part of your industry body gives you a voice. It is another way to raise your business profile.

 Take action!

Work through this list and add your ideas into your business plan. Just promoting your business on social media isn’t enough to increase your profits. It is important to get out there and build a network, meet people face to face and be part of the local community.

 

 

How to change accountants

Changing accountants can be a very difficult decision.

Every year make a point of reviewing your relationship with your accountant. Your relationship with your accountant is integral to the success of your business.

Consider the following-

Is your accountant proactive?

You need an accountant that can advise you on the best way to progress your business, increase profits and expand. Are they proactive in ensuring you are paying the right tax and making savings where possible?

Are you being supported to use a cloud accounting platform?

With Making Tax Digital now implemented for VAT registered business and the full roll out on the horizon its vitally important you are using an online platform for your accounts.

Do you feel your accountant is friendly and approachable?

There is nothing worse than calling up your accountant with questions and being made to feel you should already know the answer! Ideally you need an accountant that is happy to answer any questions you may have and reassure you. You also want phone calls returned and emails answered within a sensible time limit!

If you feel you are not getting the service you require then it might be time for a change. You might feel it’s a very daunting but here are some tips to help you transition from one accountant to another without too much pain!

Find a recommended accountant.

The best place to start is among your network of connections and ask for a recommendation. If you don’t have a network, check out the trusted accountants listed at Handpicked Accountants. Or you can use Google to find an accountant in your area. Look for companies with recommendations online or check other social media platforms such as Facebook or LinkedIn and see what testimonials they have.

Arrange a meeting with a prospective new accountant

Before making a final decision arrange a meeting to disusss your accounts. Find out the costs, which online platform they are using and what support they can offer you.

Give notice to you existing accountant

Once you have decided send and email to your existing accountant advising them you are changing and give them the details of your new accountant.

Notify HMRC

You will need to notify HMRC of the change, some accountants will do this for you. Just check.

Register with your new accountant

They will require proof of I.D which is part of the law surrounding money laundering. They will also ask you to sign a form to allow them to deal with HMRC on your behalf. Your new accountant will also write to your existing accountant and ask them for any existing records and information. This is called professional clearance and they will also ask if there is any reason, they should not work with you! Sometimes accountants will charge a small fee for compiling the paperwork. An hour’s rate is reasonable.

If you experience problems

Changing accountants should be seamless. Problems can arise. This can be when fees are not paid which you may be disputing or consider unreasonable. If you cannot resolve this then you can contact the body your accountant is registered with.  Or you contact the fee arbitration officer at the the Institute of Chartered Accountants (ICAEW) who can help you settle a dispute.

If there are believed to be any accounting irregularities, you may also find problems switching accountants. Your existing accountant may discuss this with your new accountants.

There shouldn’t be any issues changing accountants if you are running your business correctly and have complied with all the relevant HMRC tax laws.

Speak to Spicer and Co!

We pride ourselves on ensuring our new clients have a seamless and stress free experience.

Part of our onboarding process is an initial meeting to discuss your requirements. Once you have decided that we are the right accountants for you we can arrange a further meeting if required. Our team will send you all the relevant paperwork and we will send you a welcome pack.

 

Demystifying the Domestic Reverse Charge VAT

Update from HMRC – DATE CHANGED from October 2019 to October 2020

Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.

To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit.

CLICK HERE FOR HMRC BRIEF 


On October 1st 2020 there is a big change being implemented in the way VAT is being collected in the building and construction industry. It is called the Domestic Reverse Charge VAT.

This has been set up to tackle fraud. This will mean that fraudsters will no longer be able to set up a construction business, charge VAT to customer then disappear before paying the VAT to HMRC. This practice is known as missing trader fraud and the change means that the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier. It will only apply to individuals or businesses registered for VAT in the UK (although it will not apply to consumers).
This will affect you if you supply or receive specified services that are reported under the Construction Industry Scheme (CIS).

We would like to draw your attention to the details on the HMRC website which states the following –
You need to prepare for the 1 October 2020 introduction date by:
• checking whether the reverse charge affects either your sales, purchases or both
• making sure your accounting systems and software are updated to deal with the reverse charge
• considering whether the change will have an impact on your cashflow
• making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate,

What contractors need to do
If you’re a contractor you’ll also need to review all your contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.

What sub-contractors need to do
If you’re a sub-contractor you’ll also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

The reverse charge does not apply to consumers or final customers of building and construction services. Any consumers or final customers who are registered for VAT and Construction Industry Scheme will need to ensure their suppliers do not apply the reverse charge on services supplied to them.

For reverse charge purposes consumers and final customers are called end users. They are businesses, or groups of businesses, that do not make onward supplies of the building and construction services in question, but they are registered for CIS as mainstream or deemed contractors because they carry out construction operations, or because the value of their purchases of building and construction services exceeds the threshold for CIS.

Services affected by the domestic reverse charge
The reverse charge will affect supplies of building and construction services supplied at the standard or reduced rates that also need to be reported under CIS. These are called specified supplies.
There is an important difference between CIS and the reverse charge where materials are included within a service. The reverse charge applies to the whole service whereas CIS payments to net status sub-contractors are apportioned and no deductions are made on the materials content.
The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.

It also does not apply to some services.

These are those supplied to end users or intermediaries connected with end users. Find out more found in the End users and intermediary supplier businesses section.
Employment businesses who supply staff and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge. Read the Applying the domestic reverse charge for construction services to certain sectors or types of transactions section for more information.

You will have to apply the reverse charge if you supply any of these services:
• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
• pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
• painting or decorating the inside or the external surfaces of any building or structure
• services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

For more detailed information please visit the HMRC website or give us a call to check what you need to do if you are affected by this change. Click here

Please also see our graphic below which explains this in simple terms!

6 Top Tips for Smarter Bookkeeping

To be successful in business its vitally important to have a good accountancy system in place. Knowing your numbers is essential for you to track your progress and to ensure your business is profitable.

Most small business owners hate doing accounts – we know this because they tell us! For many it’s the most boring, mundane job they must do to run their business and consequently many do not have a system for doing their business accountants efficiently and therefore leave doing their tax returns to the last minute. It also means they do not know the trading position, which will reflect in the progression of the business.

If you are a small business owner who finds themselves working late in the day or weekends to keep up with the accounts and do not know at a click of a button your figures in your business then you need to start thinking how you can work smarter with your book keeping.

Keep your business finances separate from personal finances

We all hate paying bank charges but there are ways around this. Sole traders (not a limited company), can sometimes use normal bank account for business, transactions with all the better terms that involves but check your terms & conditions – some banks won’t allow this.

Most banks offer the first 18months- 2 years for new business banking customers. So, you could avoid charges by simply switching banks when the free banking ends. Money supermarket shares some tips here on the best banking deals and tips to save on bank charges,

If you have an FSB membership you can qualify for free business banking with the Co-Op, worth checking as there are a lot of other benefits too.

Keeping your business finances separate is important as it helps you to be clear which expenses relate to what and should you ever get a tax inspection this will make things much easier.

Choose an online accounting cloud software package

Using a cloud-based accounting software package means you have immediate access to your financial data. There is a huge choice of online cloud bookkeeping software packages on the market. Which one you choose will depend on what your business does. We recommend Xero because we think it is user friendly, you can access your accounts anyway and you can sync it with payment portals. Plus, you can quickly get a picture of how your business is performing, payments which are outstanding and your day to day bookkeeping tasks will be reduced dramatically. You can also use this to monitor your orders and customer activity, vital knowledge about your products or services.

HMRC plans to make all business report their tax information digitally, companies who are VAT registered are already using this system. It makes sense to start using an online package now to be ready for this change. Find more about this here.

Get into a bookkeeping routine

Ensure at least once a month you ensure all transactions have been recorded, payment owed to you have been made, you have invoiced your clients, enter your expenses into your accounting system and reconcile your bank statements. If you find you are spending a lot of time doing this, it might be more cost effective to use a bookkeeping service. Discuss this with your accountant who can advise you, many accountants offer this service. Time spent doing your books could be time spent building your business. Outsourcing activities like bookkeeping often makes more sense.

Weekly
  • All invoices are raised
  • All receipts and expenses are up to date
  • Ensure supplies are paid
Monthly
  • Reconcile your bank account
  • If you have staff you will need to run your payroll
  • Chase any unpaid invoices from customers
  • Ensure all receipts and expenses are up to date for the month
Quarterly

You may have a VAT return to submit

Review your business and how it is trading

Apps to support your bookkeeping

Are you always losing receipts? Or do you find the job of entering them online boring and time consuming then there are 2 apps we recommend both are very easy to use. Check out Auto Entry or  Receipt bank

If you use your vehicle for business and find keeping track of your business mileage difficult then try using an app called MileIQ. It will save you a lot of time by logging the trips automatically. You just have to categorize them by swiping left for Personal and right for Business

Cash in no longer King

Try and get all your customer to pay via a digital payment. This makes tracking payments easier and simpler. You do not want to be holding large sums of cash on your premises anyway!  HMRC regularly target cash-based businesses as they know many do not declare their full income or keep good records. If you are a cash-based business keep very clear, detailed records and receipts.

Create a filing system

Have a folder, box file or some means of creating a filing system for paperwork relating to your business finances. Filing monthly receipts, invoices in chronological order for most businesses works best.  Keep your records safe. Sole traders must keep their paperwork for at least 5 years after the 31st January submission deadline of the relevant tax year, as if you do get an inspection HMRC may ask to see it.  Here is a guide from HMRC for sole traders about what records you must keep.

If you are a Director of a limited company, you can be fined £3,000 for not keeping adequate business records and even be disqualified. Records should be kept for at least six years from the end of the last company financial year which they relate to.

In both cases, if paperwork is missing, be sure to inform HMRC that you’re using estimated or provisional rather than actual figures.

Next Steps

Our overall advice is firstly sit down with your accountant, discuss a system which works for you both. Ensure you get into a proper routine and review your business finances on a regular basis. This way any issues or problems can be picked up and quickly corrected.

If you aren’t using an accountant- why not? They are experts in tax and most accountants will pay for themselves in the savings you make on your tax bill. Plus, by using an expert you know you are paying the correct tax! If you want some initial free advice contact us.