Halloween is officially behind us and, almost overnight, the pumpkins have been replaced with thoughts of getting in the loft and seeking out the Christmas decorations. The festive adverts are creeping onto our screens and there's always someone who's already finished their Christmas shopping. Show-offs.
For business owners, that festive itch also means thinking about how to thank staff, treat clients and perhaps organise the annual Christmas party.
But before you start spreading the Christmas cheer, it's worth remembering that HMRC has a few rules about what you can and can't claim for.
Here's what you need to know before the festive spending begins.
Gifts to staff
A little Christmas thank you goes a long way. Thankfully, HMRC allows employers to give staff gifts worth £50 or less (including VAT) without triggering tax or National Insurance, provided they qualify as trivial benefits.
The catch? Gifts can't be cash, a reward for doing someone's job or something they're contractually entitled to. Certain non-cash gift vouchers are allowed though, so there's still plenty of choice.
For directors of close companies, there's also a £300 annual limit on qualifying trivial benefits, including those provided to family or household members.
And here's where HMRC gets particularly festive. Spend £50 and you're fine. Spend £50.01 and the whole benefit becomes taxable, not just the extra penny. Yes, really.
If you're planning a cash Christmas bonus instead, that's absolutely fine, but it needs to go through payroll with the appropriate deductions.
Gifts to clients
A bottle of wine, a box of chocolates or something a little more personal. It's always nice to thank clients for their support, but HMRC isn't quite so generous when it comes to claiming the cost.
For a business gift to qualify for tax relief, it generally needs to cost no more than £50 per recipient in the relevant tax period, carry clear business branding and not be food, drink, tobacco or a voucher exchangeable for goods.
A branded notebook? Potentially deductible. A lovely bottle of wine with your logo on the gift bag? Afraid not.
Multiple gifts to the same person count towards that £50 limit too, so it's worth keeping track. VAT recovery also follows different rules, meaning a gift that qualifies for VAT recovery won't necessarily qualify for tax relief.
By all means treat your clients. Just don't assume HMRC will be contributing.
Christmas parties and entertaining
Now for the fun bit. Whether you're planning a full-blown Christmas party or something more low-key, there's a £150 per person tax exemption worth knowing about.
To qualify, the event must be annual, open to all employees (or everyone at a particular location) and cost no more than £150 per head, including VAT, transport and accommodation.
But beware. That £150 is an exemption, not an allowance. Go even slightly over and the entire cost of the event can become taxable. If you're hosting multiple annual events, such as a summer party and Christmas party, the £150 limit can cover more than one qualifying event.
As for entertaining clients? That's generally not tax-deductible and you usually can't reclaim the VAT either.
So enjoy that festive client lunch. Just don't expect HMRC to pick up the tab.
Keep the festive cheer, not the tax headache
Nobody wants to spend December worrying about tax rules, and nobody wants to discover in January that their generosity has created an unexpected bill.
A little planning now can save an expensive surprise later. So, before ordering gifts or booking the Christmas party, make sure you know what qualifies.
And if you're unsure, our tax team is always happy to help.
After all, Christmas should be about giving, not giving HMRC more than you need to.
The Takeaway
Take money out of the business in the right way, look at your position as a family rather than just individually and think about what you’re trying to achieve before making decisions purely to save tax.
If you’d like to take a closer look at how you’re managing your tax and whether there’s a better way of doing things, get in touch at https://www.forrester-boyd.co.uk/about-us/meet-our-team/matthew-priest. I’m always happy to have a chat and explore your options. Preferably over a coffee.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
