Christmas: Will it be a Taxing Time for your Business?

At this time of year, along with many other longstanding traditions, business owners like to reward their loyal staff with gifts, bonuses and parties. But don’t forget that the tax man is also rubbing his hands together in anticipation of extra income for the Revenue. There are some rules to be aware of if you don’t want to have extra tax or NI liabilities for the company or your staff.

Taxing Gifts

Small seasonal gifts can be treated as trivial for tax purposes. If you hand out a few Christmas turkeys or boxes of chocolates to members of staff, they won’t incur a benefit in kind tax charge. But if you made your gift an expensive Christmas hamper or bottle of vintage champagne, it won’t be seen as trivial, and the employee could be taxed on it.

Taxing Bonuses

You can’t avoid the tax due on a Christmas bonus. It is of course included in annual income and therefore taxable at whatever bracket is appropriate for the individual. And whether 80% or 60% or 50% of it becomes disposable income, it’s sure to be welcome. Of course, it will also have an impact on levels of national insurance for both the individual and the company, so that must also be included in the bonus budget.

Taxing Christmas Parties

The tax rules about annual functions cover the Christmas party. If Christmas is the only time you have a staff get-together, as long as your costs do not exceed £150 per head, no additional taxes will be charged.

Everything you spend, including VAT, on venue, food, drink, entertainment, and transport or accommodation, must be taken into account as a benefit for the staff member. If the total divided by the number of staff attendees works out at more than £150, unless you have a PAYE Settlement Agreement with the Revenue, your payroll operatives have to include it as a benefit in kind for tax purposes. For any employee whose earnings come to £8,500 or more in the year, or for any directors, your company must pay additional National Insurance as well.

If you also treated your staff to a summer barbecue and/or any other annual functions, and the amount per head of all the functions added together exceeds £150, the rules become quite complicated. If this is the case, you may need some expert advice on what tax is due.

Ask your outsourced bookkeepers to help you make sure you comply with the rules. With the current special scrutiny by HMRC on small businesses, it’s important to get your tax affairs right this Christmas.

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