As the Christmas season is rapidly approaching here’s a quick reminder of what is tax deductible and what isn’t!
The rules on Christmas parties depend on who is invited…
Staff – the main tax implication of staff Christmas parties is whether you need to report the cost of the party as a taxable benefit for your employees.
Check how much the party cost per head (for everyone who came, including employees’ guests), if the cost is less than £150 per head you will not have to pay anything extra for the employees.
However, if the party cost more than £150 per head, you’ve already used up the £150 per head on another annual event or you don’t invite all of your employees, then the whole cost of the party counts as a taxable benefit.
You cannot deduct the £150 per head, the whole cost will need to be reported on p11D forms and class 1A National Insurance will be paid on it.
Non – Employees – if you have a Christmas party for anyone other than your staff, HMRC will class this as business entertaining. You cannot claim tax relief on the cost of entertaining anyone who isn’t an employee (or the guest of an employee), you will not be able to reclaim any VAT either.
If there is a mixed group of both employees and non-employees at the party then the cost needs to be split appropriately.
Unless you work from home you can claim full tax relief on the cost of Christmas decorations (including a tree). If you work from home (even if you have dedicated office space) then HMRC will say that the decorations are for your own personal enjoyment and you won’t be able to claim any tax relief.
Gifts to Clients
If you give your customers/suppliers a Christmas gift the cost should be recorded as business entertaining. Unfortunately, you can’t claim tax relief or reclaim VAT on these gifts unless they:
- Contain an obvious advert for your business, AND
- Are NOT food, drink, tobacco or a voucher that’s exchangeable for goods, AND
- The cost of the gift (and any others to that person in the tax year) is under £50.
Gifts to Staff
The rules on staff gifts depend on what the gift is…
Cash Bonus – this is treated the same way as regular earnings and should be run through the payroll. Tax and NI will be paid as usual.
Non-Cash Gifts – if the gift doesn’t have a cash value, e.g. a box of chocolates, then HMRC may accept that it’s a ‘trivial benefit’ (a small gift that’s given for personal reasons, rather than reasons relating to employment).
If you’re giving a trivial benefit you don’t have to report it on a p11D form. If the gift does have a cash value, e.g. a voucher, you would need to report the value on a p11D form and therefore would also have to pay class 1A National Insurance on the value.
If you would like any further information please email me on firstname.lastname@example.org