Here at North Star Accounting, we understand that Christmas expenses can be a bit of a minefield for business owners. You’ve probably got all sorts of questions right now. Namely, what expenses can a business claim at Christmas? Is a Christmas tree in the office really an allowable trading expense? And if you’re gifting your clients a bottle of fizz, is each one allowable for VAT or Corporation Tax?
Fear not, because we’ve got your Christmas tax savings covered. Our Founder, Tania Bennett, has put together a short, easy-to-understand video that explains all things Christmas expenses. We’re talking Christmas gifts for clients and customers, Christmas decorations, and the annual staff party (which may look very different this year). Check it out below, or scroll down for Tania’s key takeaways…
Rules for clients & customers
If you’re gifting clients or customers this Christmas, you’ll need to be aware of the fact that most gifts are not allowable for tax relief. Reason being, they’re classed as business entertainment. While you can pay for them through your company, you can’t claim back VAT and it won’t reduce your Corporation Tax bill at the end of the year. Here’s the rub:
- Food, alcohol, tobacco and vouchers are all classed as business entertainment
- Any gifts that don’t fall into the above categories, and have a clear advert for your company attached (e.g. a business card attached to the gift) are ok
- Gifts for an individual must not exceed £50
Tania’s top tip:
A notable exception is samples of your own products. These are permissible as gifts.
Rules for employees
For employees, the rules are different and you can use the trivial benefits-in-kind rules. The good news? Seasonal gifts such as turkey, wine and chocolate are allowable. Here are some other need-to-knows:
- HMRC will consider a benefit exempt if it is deemed to be a trivial benefit
- It must cost £50 or less
- It must not be cash or a cash voucher
When it comes to Christmas decs expenses, HMRC are a little more generous. Here’s the lowdown:
- You can claim expenses for office decorations, such as Christmas trees
- You can claim expenses if you send Christmas cards out (and I’d recommend doing so, as it’s great marketing), as these fall under stationery and printing costs
If you’re throwing a party for clients, this counts as entertainment and is never allowable for Corporation Tax, plus you won’t be able to recover the VAT.
Parties for staff are another story. The cost of an annual Christmas party is an allowable tax deduction for businesses. Here are some notable points to remember, though:
- You may claim £150 (including VAT) ‘exemption’ per employee. Subcontractors not on the payroll are not included
- The £150 exemption may also be used to cover employee transport and any accommodation to enable the employee to attend
- The £150 is an annual amount. If you held a company-wide summer party, then you may have used up the exemption already
- If the £150 limit is exceeded, staff will be taxable in full on the total cost per head, so make sure you don’t overspend!
Tania’s top tip:
All employees and directors must be invited to the Christmas event for it to be tax -free. Even if you are a sole-director company, you can still enjoy a festive activity as a deductible expense!
We all know that Christmas 2020 is looking very different, and a physical event is unlikely for most businesses. That said, an online meeting can still qualify as a location and allow you to benefit from all of the above. Consider an online class you could all partake in, or perhaps a guest appearance from a singer.. Whatever you do, enjoy yourselves!
Want to find out more about North Star Accounting and how we can help you with your business accountancy needs, from Christmas tax savings and beyond? Get in touch here.
Merry Christmas from the team at North Star Accounting!