Business Insight

Christmas Tax Tips

Submitted by , 12/10/2018

Christmas Tax Tips

Malone Accounting Christmas Tax Tips

Seasons greetings, we hope you are enjoying the build up to Christmas, yes it’s that time of year again!

Though tax is hardly top of the agenda at this time of year, we thought it would be a good idea to share some tips on some common Christmas tax issues that we frequently get asked about.  Please have a read and if there’s any questions you have or to discuss something else that isn’t on the list, please get in touch with one of our team.

  1. Christmas parties

So you’ve got the Christmas staff do booked, we have ours booked for Friday 14th in the afternoon so looking forward to that.  But here are the main considerations you need to be aware of so that it qualifies for full tax deduction from your profits:

  1. Doesn’t cost more than £150 per head
  2. Open to all employees
  3. Is an annual social event such as a Christmas do or even summer BBQ

Remember the cost per head can include accommodation, transport, and food and drink.  Directors also qualify for the £150 per head rule as long as they are employees and are taking a wage, even if it’s a basic salary at the minimum national insurance threshold.

All you need to do is take the total cost and divide by the number of people who attend to arrive at the cost per head.  This £150 limit can apply to multiple events over the year also. If you go over the £150 but if it goes over this amount then the total is taxable on the whole amount for each employee!

You can also claim back the vat on the party provided it doesn’t go above the £150 per head and qualifies for exemption.

  1. Gifts for customers/suppliers or staff

Generally any gifts for customers/suppliers or staff that are food or alcohol are NOT tax deductible.  For staff that applies only if the total value per head of food and drink is above £150 as explained in number 1.

However there are a few exemptions to this:

 

  • The gift is of an item which it is the trader’s trade to provide and it is given away in the ordinary course of the trade to advertise to the public
  • The gift incorporates a conspicuous advertisement for the trader, although there are exclusions relating to the type of gift and the total amount per person, eg. Calendars with your business logo
  • The gift is provided to the employees of the trader so long as this is not incidental to gifts being provided to others
  • The gift is given to charity or other specific bodies

If you send Christmas cards to your customers or suppliers, make sure to have your business logo on it and the cost will be tax deductible as it can be treated as advertising.

Trivial Benefits

Whilst we are on the topic of gifts to staff there are also rules on “trivial benefits” for an employee who you give a small gift to, for example a birthday present of flowers or chocolates, as long as all of the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

  1. Donations to charity

Some businesses prefer to give to charity at this time of year instead of sending out Christmas cards to customers.  Money donated to charity by your limited company is generally tax deductible.

If you are a sole trader or partnership then the donation is not a tax deductible expense, but you will receive tax relief if you are a higher rate tax payer paying 40% on income tax as for every £100 you donate you will only pay 20% on that amount as the donation increases your basic rate band.

  1. Vouchers for staff

What you have to report and pay to HMRC depends on whether the vouchers are exchangeable for cash.

Vouchers exchangeable for cash

These vouchers count as earnings, so you’ll need to:

  • add their value to the employee’s other earnings
  • deduct and pay PAYE tax and Class 1 National Insurance through payroll

Vouchers exchangeable for goods and services only (non-cash vouchers)

You must:

  • report the value on form P11D
  • add the cost of the vouchers to the employee’s earnings when deducting Class 1 National Insurance (but not PAYE tax) through payroll

So this option saves the national insurance element of say giving them the £100 in cash to spend on whatever they like.  There are a number of providers of voucher schemes for businesses online who provide this service to employers and offer a wide range of retailers that the vouchers can be used with.

Anyway we hope this helps in some of the decision making for your business before the Christmas holidays.

Thanks,

Malone Accounting