It may be tempting as we approach the holiday period and with many Christmas parties probably cancelled or at least severely reduced, for you to plan to treat your customers and/or your team with some gifts. You need to be aware of the tax implications of doing so before going ahead.
Gifts For Clients
You may wish to give your loyal customers gifts this Christmas. Such gifts are dealt with for tax purposes under the same rules as ‘entertaining’ and unfortunately that means you cannot claim tax relief or a VAT refund, unless the gifts meet all of the following requirements:
- The gift cannot be tobacco, food, drink or a voucher.
- The total of all gifts given to an individual cannot exceed £50.
- The gift must contain your business’ branding.
Gifts For Your Team
The rules for gifts to your team are slightly different to those for clients. These gifts are viewed as ‘trivial benefits’. If the gift takes the form of a voucher, or is another item with a cash value, this value must be reported on the employee’s P11D form. As a result, the employee will have to pay income tax on the value and you will have to pay NI contributions. Similarly, if you reward your team with a cash bonus, HMRC will view the gift as additional salary and therefore PAYE and NI will have to be deducted.
However, a gift is classed as tax free for both yourself and your employee if the gift cost less than £50, is not a voucher or cash, is not part of your employee’s contract and is not a reward for a job well done.
Parties For Clients
You may not be planning them this year but if you are – as with gifts, parties for clients are classed as ‘entertaining’, so tax relief is not available and VAT cannot be reclaimed.
Parties For Staff
Fortunately, the same rules do not apply for staff parties. Instead, there is an annual deductible allowance of £150 per person as long as the following conditions are met:
- The party is an annually held event.
- All team members are allowed to attend.
- The total cost of the event is no greater than £150 per person. If it is above this value, the full amount will be taxable.
- If you have already organised one event in a given year, the cost of the Christmas party must not bring the total cost of the two events above £150 per person. If it does, you will be liable to pay tax on the entire cost of the Christmas party.
Tax Advice tax advice for businesses in Salford from MCC Accountants
If you’d like more tax advice, Salford based MCC Accountants employ a number of dedicated specialists as part of the Tax Services Team. They can assist you in reducing your tax expenditure, firmly believing that personal wealth should be retained by the creator. Contact us to find out how we can help.