Tinsel Taxes: Beware of Tax Issues During The Festive Season
As we are rapidly approaching the festive period, businesses getting into the spirit of things often ask what they can and can’t claim for tax purposes.
Here is a quick reminder of how to treat your festive finances:
Gifts to Employees
To all you generous employers out there, here are a few guidelines to employee gifts:
- You can give an employee a cash bonus, but this must go through the payroll and it will have tax and NI deducted from it. Make sure you tell your accountant or person who prepares the payroll well in advance, so that they can submit the right figures to HMRC.
- Unfortunately gift vouchers are also tax and NICable
- The most tax efficient gift is a “trivial gift” such as a turkey, a bottle of wine or a box of chocolates. HMRC does not give a limit of “trivial” but I think more than £50 would be pushing it.
Team parties, every HR person’s favourite time of year...
But they needn’t cause your accountant the same headache. The main rule here is make sure that the full cost of the party (that includes food, drink, hotels, taxi’s etc) comes to less than £150 (including VAT) per head. This includes guests, so if you have 5 team members, who each bring a guest, then the total would be 10 x £150, so £1,500.
If the cost of the party (or the total cost of parties over the year if you have another bash, such as a summer event) comes to more than £150 per head, then the total cost is classed as a benefit and is taxable on the employees and the employer. It isn’t just the difference that is taxable it is the full amount. So if the cost comes out at £160 per person, then the full £160 is the taxable benefit, not £10 – not nice!
You should also note that the party has to be open to all employees (it is irrelevant whether they attend or not). If the party is exclusive to one department, for example, then it becomes taxable.
If you only employ yourself (through a limited company) the same rules apply as above. However, if you are self-employed (sole trader or partnership) then any parties you hold for yourself are not entertaining, but drawings.
Gifts to customers/suppliers
If you want to thank your customers or help build your relationship with your suppliers, then Christmas gifts are a great idea. However, most gifts will not attract tax relief and will be classed as business entertaining, unless you can meet all of the following criteria:
- The cost of the gift is under £50 (this is a total per person per year)
- The gift is not food, alcohol, tobacco or a voucher
- The gift must display an obvious advert for your business (not just on the wrapping paper)
A good example is a diary with your businesses logo on, or a mug.
If you have any questions, please do get in touch. We hope you all have a great festive period and don’t eat too many mince pies.
Merry Christmas from everyone at Change.