The festive season is a vibrant time for businesses to express gratitude and celebrate achievements. However, the joy of giving and celebrating comes with its own set of tax considerations. This detailed guide by Kudos Accountants provides an in-depth look at the tax implications of Christmas-related expenses, ensuring your business enjoys the festive season in a tax-efficient manner.
1. Mastering the Art of Gifting to Clients and Customers: Gifting clients and customers is a common practice, but it’s important to understand its tax implications. Generally, corporate gifts are not tax-deductible and are classified alongside entertaining costs. However, there are noteworthy exceptions:
- Promotional items costing less than £50, excluding food, drink, or tobacco, are deductible.
- The gift must prominently display your business’s advertisement.
- For giveaways intended for the public, like samples, different rules apply. VAT Treatment:
- Gifts over £50 or cumulative gifts to one person exceeding £50 require accounting for output VAT.
- Free samples of your company’s products are exempt from VAT.
2. Tax Considerations for Hosting a Christmas Party for Employees: Christmas parties are a great way to reward employees, but they come with specific tax rules:
- The cost per head should not exceed £150, including VAT. If this threshold is crossed, the entire cost becomes a taxable benefit.
- Parties must be open to all employees to avoid tax implications.
- If hosting multiple annual events, the £150 limit is cumulative and should be allocated wisely to avoid tax burdens on employees. For instance, if a Christmas party costs £100 per head and a summer BBQ costs £80, only one can qualify for exemption. Deciding which event to exempt is crucial for optimal tax benefits.
- That means if you invite your employees’ spouses or partners to the function, they’ll get their own £150 limit.
- However, the exemption only applies to entertainment for employees and their partners or family members. That means any events you hold for clients will not qualify for corporation tax relief.
3. Gifting to Employees: Employee gifts are usually tax-exempt if they meet certain criteria:
- The cost should not exceed £50 per gift.
- Cash or cash vouchers are not included.
- The gift shouldn’t be part of the employment contract or for a specific service.
- For ‘close’ companies, an annual £300 cap applies to directors and their families.
4. Entertaining Non-Employees: Entertainment for non-employees, including clients or contractors, has different tax treatments:
- The £150-per-head rule does not apply to clients, meaning such events are not eligible for corporation tax relief.
- Inviting contractors or subcontractors requires careful consideration of their employment status.
5. Corporation Tax and VAT Insights: VAT and corporation tax play a significant role in festive spending:
- Include VAT when calculating the cost-per-attendee.
- VAT-registered businesses can claim VAT refunds on purchases for these events.
- Expenses outside the £150 limit are still allowable for corporation tax and VAT relief.
- Any events you hold for clients will not qualify for corporation tax or VAT relief