The holiday season is finally upon us, and it’s time to put down the mince pies and give some thought to the annual Christmas party and what gifts you can give your staff and customers this year.
Be aware that you’ll need to pay tax on most of these gifts, but there are ways of reducing the tax burden and here are a few of them.
Can I give a tax-deductible Christmas bonus?
The answer is no.
Any cash gift you give to an employee will count towards their standard earnings and will be taxable under PAYE and Class 1 National Insurance, along with their other earnings. The same rules apply to the full value of any cash vouchers or gift cards.
Non-cash gifts considered as benefits are also taxable.
Also, your employees need to be aware that if they are going to sell the gifts for cash, then the gifts are treated as earnings.
Which Christmas gifts aren’t taxable?
You do not have to pay tax on a benefit if it is considered to be a trivial benefit. As of April 2016, HMRC considers your gift as a trivial benefit if it meets the following criteria:
- The cost of providing the benefit does not exceed £50 (or the average cost per employee if it is being given to a group and exact per person costs cannot be calculated)
- It is not cash or a cash voucher
- It is not an entitled benefit per their contract with the employer/ company
- It is not provided to reward the employee for services that are part of their regular employment duties
If any of these qualifications are met, then the bonus is not taxed as normal. Exemptions also apply when a third party provides a trivial benefit on behalf of the employer.
What Christmas gifts can I give to customers?
To keep your costs down, follow these straightforward rules to ensure these gifts are tax-deductible:
- The overall cost of gifts given to an individual per annum can’t exceed £50 (otherwise the whole amount will be disallowed),
- The gifts must display a conspicuous advert for your business (placed upon the item itself, not just the wrapping).
- The gift can’t be food, drink, tobacco, or vouchers that are exchangeable for the aforementioned products.
How can I host tax-efficient Christmas parties?
When it comes to annual staff events such as the Christmas party, there are very specific regulations you must follow to ensure that your party is tax-free.
When planning your party, keep in mind that you will receive a tax exemption of £150 per head. This applies to everybody, including guests and clients. The tax exemption is inclusive of VAT. If the cost of your party goes above £150 per head, all of the party costs will be taxable as a benefit in kind. This figure is calculated from anything you claim as business expenses, including accommodation and transport.
Remember that the £150 per head allowance is for the combined cost of all parties throughout the year. Plan a single, large party to make it easier to keep track of the expenses
You can also reclaim VAT on entertainment expenses, as these parties can be classed as employee entertainment. However you must not host non-employees, or your party will be classed as business entertainment and you will be forced to pay VAT.
Contact our tax specialists today on 020 8108 0090 if you feel you could benefit from speaking with one of our tax professionals regarding your festive tax situation. Alternatively, you can get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
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This blog is a general summary and updated on 12 Dec 2018. It should not replace professional advice tailored to your specific circumstance.