Christmas is the season of giving, so businesses may wish to show their thanks to clients and employees with a gift. The problem with doing so, is that gifts generally fall into the category of entertaining, which means that they are not tax deductible. This can quickly get expensive, but there are a number of exceptions which can help you out.
Gifts to customers
Gifts incorporating a clear advertisement for the business are allowable as tax deductible expenses. Examples are things like diaries and pens with the company branding, as HMRC explicitly states that the branding must appear on the gift itself, not just the wrapping.
However, gifts of food, drink, tobacco or vouchers which are exchangeable for goods are not allowable unless they are the products produced in the ordinary course of business and are given away to the general public for promotional purposes.
There is a further restriction in that the cost of the gift per person cannot exceed £50. This is not to say that if you exceed £50 per person that the excess will be taxable, but rather that if you go over the £50 barrier, the entire cost of the gift will be taxed.
Gifts to employees
It is only tax deductible to give gifts to your employees if the gift is deemed as a “trivial benefit”. For this to be the case, the gift must cost less than £50 per employee and can not be cash or a voucher that can be exchanged for cash. Importantly, it must also not be in return for a salary sacrifice or in respect of work carried out.
You might also wish to give employees a Christmas bonus, but be aware that these are subject to PAYE and National Insurance as with any additional salary.
Employee Christmas party
Companies can run annual functions as an allowable tax deduction, provided the following conditions are met:
- It is an annual event
- It is open to all employees at a particular location if you are a multi-site operation
- Total costs amount to less than £150 per employee (even if not all employees attend)
- VAT is recoverable on staff entertainment expenditure but not that of partners
For any advice on the tax implications of gifts, or for any other accounting needs, please contact Stack & Jones Accountants on 01869 277973 for a free 1-hour consultation.
Sources: gov.uk, rawlinsons.co.uk, contractorcalculator.co.uk, smarta.com, kirkrice.co.uk,
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