With the Yuletide season fast approaching, many businesses are starting to think about Christmas, and we at AIT Accountants are no different.
Being based in Solihull at the heart of West Midlands business activity, we are always busy answering client’s queries on various tax issues, but we have noticed an increase in questions around what the tax implications are for various spending at this time of year.
So, with Christmas in mind, we thought we would share our thoughts on tax issues and the festive season, which we hope will give you some food for thought, and steer you through the festive period with some positive tax advice tips.
The Office Christmas Party
A staff party or other similar function for employees is an allowable tax deduction for businesses, but this does not apply to sole traders and business partners of unincorporated organisations.
As long as the function meets the following criteria, there will be no chargeable taxable benefit for the employee:
- It must be open to all employees, or to all at a particular location.
- The cost per head must not exceed £150. If more than one annual function is provided the aggregate cost per head must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head of attendees.
- If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending. Alternatively, the business can enter into a PAYE Settlement Agreement to cover the employee’s tax for them, this would be payable by 19 October following the tax year.
- Cost is calculated as the total cost of the party or function including any transport or accommodation provided and VAT.
- Also VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned.
Hospitality of any kind is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
Gifts to customers are only allowable as a tax deduction if:
- The total cost of gifts to any one individual per annum does not exceed £50 and;
- The gift bears a conspicuous advert for the business and;
- The gift is not food, drink, tobacco or exchangeable vouchers.
However, it is worth noting that samples of a trader’s product are allowable even if they are food, drink or tobacco.
Christmas gifts for staff
In some cases, HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so small as to be not worth pursuing.
The revenue have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of wine or bottle of vintage fine wine or a hamper is highly unlikely to be considered trivial.
Some employers give staff vouchers at Christmas; these are subject to tax and NI on the individual.
Christmas Bonuses for staff
This will count as ordinary earnings and be taxed as if it were additional salary.
So there you have it. Revenue and customs may be a bit like Mr Scrooge when it comes to Christmas, but if you are in any doubt about whether you can claim tax relief make sure you speak to a good accountant.
We at AIT are always happy to help.