Christmas Gifts

Whether you are celebrating the end of a good financial year or feeling pleased your business had the resilience to make it through another year, either way you are more than likely looking at your team and wondering how you can thank them for their hard work and contribution.

It is important that we treat employees and clients at this festive time, however HMRC rules need to be applied to giving gifts. 

Please contact us for further guidance if we have not included the gift you would like to make. Here are some suggestive gifts and the rules / tax implications that apply: 

Christmas Cards or Charity Donation

Over the last few years Charity Donations have become increasingly popular and are a tax deductible expense, it is quite common for a company to send an E Card with the details of their chosen charity for that year. This donation is a tax deductible expenses, so the cost would be 75% of the amount you donate, depending on the corporation tax that applied to your company, (if you are a For-Profit company). Deduct the value of the donations from your total business profits before you pay tax. Find more information here on donating to charity.

A £50 gift to yourself and your staff

Limited companies can give a maximum of £50 which counts as a trivial benefit exemption so no Tax or NI is payable. Be careful though as this does not apply to cash. The gift could be a Non Cash voucher or a gift, such as a hamper containing wine and, or chocolates etc. Where the voucher exceeds £50, this will need to be reported on the P11d, Benefits in Kind return to HMRC. Whilst it is worth noting the employee will not pay Tax and NIC, this gift must be added back into the trading profits of the company when filing the corporation tax as it is a not a tax deductible gift for the business. 

If you spend more than £50

Buying a gift that costs more than £50 (and this includes delivery charges) will count as a taxable perk for the employees that receive it. They will then have to pay tax and you as the employer will have to pay National Insurance. For example, if you were to give a £60 gift it will cost you a total of £85 because of the tax and NI due.

The gifts must carry a clear advertisement for the business (e.g. with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco (unless they are your business) or vouchers. Non-promotional gifts and larger gifts are classed as entertaining and are not tax-deductible as an expense.

VAT and gifts

You are able to reclaim the VAT incurred on purchasing the gift if you are not using the Flat Rate Scheme.

You may however, need to account for VAT on the value of the gifts if they are for more that £50 in one year. You will not have to account for the VAT if the gift in exempt or zero rated such as a book. 

Gifts for your clients – direct tax deductions 

The gifts must carry a clear advertisement for the business (e.g. with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco (unless they are your business) or vouchers. Non-promotional gifts and larger gifts are classed as entertaining and are not tax-deductible as an expense.

Cash bonus

Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to:

-Add the value to your employee’s other earnings

-Deduct and pay’ Pay As You Earn’ (PAYE) tax and Class 1 National Insurance through payroll

Virtual or in person Christmas Party

There is an allowance of £150 per employee for a Christmas party. With the pandemic still continuing if you decide not to have an in person Christmas event HMRC will still let you have a virtual Christmas party and you can still have the £150 allowance per employee.

The costs can include food, drink, virtual pantomimes, online entertainment events and postage costs.  The full details are here.

This online event must be made available for all staff to attend. The VAT is reclaimable, but only for the staff costs, not partners.

Salary sacrifice arrangements

You do have to report how much social functions and parties are worth to each employee if they are a part of a salary sacrifice arrangement.

If you are a Director only firm with no Employees 

If your business does not have employees but just one of more directors, then the rules are different. The cost of providing entertainment only to directors or partners does not qualify for tax relief or VAT deduction

If the event takes place away from the usual place of work and as part of a business trip, for example, to see a client, then the meal would be eligible.

Any VAT suffered on the cost of travel, accommodation and meals can be reclaimed. The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and subcontractors who are part of the team and treated as employees.

Other measures to be less Scrooge at Christmas.....

Why not allow employees half a day holiday, which costs nothing and attracts no tax, so they can go Christmas Shopping, or see Grandparents, maybe volunteer at a Charity?