Advice on Christmas Expenses, Tax and VAT

Christmas Parties and Gifts: What you need to Know about Tax and VAT

The rules surrounding what can and can’t be claimed back on tax and VAT when it comes to Christmas entertaining and gifts for staff or clients can be quite ambiguous and often many business owners don’t realise the conditions associated with the rules, so we have put together a straightforward guide covering what you need to know, and the things to beware of!

1. Christmas Gifts to Clients

The rule:
Her Majesty’s Revenue and Customs (HMRC) allow you to give a gift to a client worth up to £50 in any one tax year.

The conditions:
1. The gift must be a business-related gift for example a calendar, pen or clock
2. The gift cannot be alcoholic drink, food or tobacco, or vouchers which can be exchanged for those three things.
3. The gift must clearly carry an advertisement for your business, otherwise it will be classified as entertainment expenses, and these are disallowed.

Gifts that cost more than £50 – and that includes the gift wrap – will be completely disallowed by HMRC – it won’t just be the amount over the £50!

2. Christmas Gifts to Staff

The rule:
All gifts to staff including Christmas gifts are classed as taxable benefits, although if they are deemed trivial they are exempt from tax.

The conditions:
1. Trivial gifts can be things like a bottle of wine or tray of chocolates and these are exempt from tax
2. Monetary gifts, for example bonuses, must be put through the payroll system and taxed in the usual way
3. Any non-monetary, non-trivial gifts must be included on form P11D

A case of wine or a Christmas hamper does not constitute a trivial gift! Be sure to check what is and isn’t classed as trivial before you buy your staff gifts this Christmas!

3. Christmas Staff Parties

The rule:
HMRC allows up to £150 per employee for a Christmas party as it is considered a reward for good work or a way of maintaining and improving staff morale.

The conditions:
1. If non-employees attend the party, i.e. partners or spouses, expenditure is allowable for tax. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per employee attending.
2. If you are a small, owner-managed business then you are still able to claim up to £150 per employee for any Christmas party or meal, even if just two or three members of staff attend.
3. Where VAT is concerned, the expenditure on non-employees is viewed as entertainment which means the VAT on that proportion of the expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.
4. If the entertainment is limited only to the partners or directors of a business then the VAT incurred is not input tax and cannot be recovered. However, if partners or directors attend staff parties along with other employees, the tax is viewed as input tax and is recoverable.

Exceed the £150 per person limit and the entire amount is disallowed, not just the excess over £150!

We hope you have found this guide useful but it does not constitute professional advice on a specific situation so if you are unsure of anything at all you should seek assistance from Office Assistants or HMRC.

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