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As the festive season approaches, many businesses are looking forward to their Christmas parties and thinking about gifts for employees.

However, beware of the Christmas tax relief trap- only certain gifts are allowable from a tax relief aspect, and Christmas parties have certain rules and regulations to obey if tax relief is to be achieved.

 

Christmas Gifts for Employees

Whether or not a Christmas gift is taxable on your employees, and taxable from an employers NIC perspective, will depend on the type of gift you give to your employees. All gifts will be tax deductible as an expense for the business. If the gift is a cash gift, the employee will have tax deducted as though the gift is regular earnings, and employers NIC is payable on the gross amount of the cash gift. The same applies to vouchers given to an employee. If the gift consists of an item, such as a Christmas pudding, an ordinary bottle of wine or a box of chocolates, the gift is tax free for the employee as long as the monetary cost of the gift per employee is less than £50. If an employee is given a gift which exceeds the £50 limit, the amount will be taxable on the employee as a benefit in kind, requiring a P11D submission to HMRC. If applicable, VAT can be recovered on any gifts given to employees, however VAT cannot be claimed on any gifts given or expenses incurred for partners of employees, as these do not constitute as employees.

Christmas Gifts for Customers

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, if the gift bears a conspicuous advert for the business and the gift is not food, drink, tobacco or exchangeable vouchers. However samples of a trader’s product are allowable even if they are food, drink or tobacco.

Christmas Parties for Employees

Christmas parties are tax deductible if the party is available to all employees, and does not amount to over £150 per employee (inclusive of VAT). It is worth noting a slight caveat- this allowance applies to ‘annual parties’, therefore if you have already entertained your staff during the year, the amount must still be kept under £150 in total to ensure the amount remains tax deductible. If the total annual expense for the employee exceeds £150 per employee, the total cost of the event is not allowable for tax relief, not just the cost that exceeds the £150, and all of the costs become taxable as a benefit in kind, requiring a P11D submission to HMRC for your employee. It is important to note that the cost is per employee, therefore if partners of employees are invited to the Christmas party, the cost of the partners will have to be absorbed within the £150 limit per employee.

We hope that this article provides some assistance as everyone looks forward to the festive season