Ho Ho Ho or Bah Humbug?

Celebrating the holiday season with employees is a great way to show appreciation and boost morale. Hosting Christmas parties and giving gifts can be beneficial for both the business and its employees. However, it's important to understand the tax implications and how to maximize tax relief on these expenses.

So, are you ready to be a Santa to your Staff and a Scrooge to the Taxman this Christmas?

Christmas Parties

The cost of an annual staff party or similar function is tax deductible and exempt from NICs if it meets certain conditions. The event must be open to all employees (and partners) and the cost per head must not exceed £150. This exemption covers expenses such as food, drink, entertainment, and even transport and accommodation if necessary. Do keep detailed records of all expenses.

If you invite clients or customers, the deductions may be limited. And if the cost per head exceeds £150, the entire amount becomes taxable, not just the excess. So don’t let Rudolph’s nose get too red and shiny!

Gifts

Giving gifts to your employees is a fantastic way to show your appreciation during the holiday season. By selecting gifts that qualify as trivial benefits, like chocolates, wine, or gift vouchers (non-cash), you can spread joy without worrying about taxes. Just remember to keep records of the cost and nature of the gifts. Your employees will love the thoughtful gestures, and you'll enjoy the tax savings!"

Any gifts must not be a reward for work or performance. And don't forget, gifts that cost more than £50 (including VAT and delivery) are taxable as an employee benefit for the full amount, as are cash or cash vouchers. So, choose wisely!

Promotional gifts to clients are classed as advertising, so these are tax deductible. For these gifts to qualify they must clearly advertise the company with personalised branding or logo. Examples would include branded stationery.

Non-promotional gifts to clients and suppliers are not tax deductible and can also fall under VAT rules. If the total cost of gifts to the same individual is less than £50 in a 12-month period, VAT on the purchase can usually be reclaimed. However, if the total value exceeds this amount, VAT cannot be reclaimed unless the gift is a sample or advertising material.

Bonuses

“Who’s on Santa’s Good list this year?” While it's a nice way to reward employees, bonuses are considered additional earnings, so they are subject to income tax and NICs through the PAYE system.

Small business owners should ensure they’ve budgeted for the additional cash needed for payment of bonuses in December and the added tax burden in January.

Christmas Sales and Promotions

This is a great time to offer discounts and promotions , offering both a marketing opportunity to reach out to new clients and a chance to reward loyal customers.

For businesses that see a spike in sales during the festive season, there are important VAT considerations to manage: If you run promotions or discounts during Christmas, it's crucial to ensure that your VAT is calculated on the actual price paid by the customer. For example, if you offer a 20% discount, the VAT due will be based on the reduced price.

Don’t let The Grinch steal your Christmas profits: The Smart Team Elves are ready to help!