Christmas generosity: What implications should you be aware of?
Andy Mallett-Knight, Tax Adviser

Christmas is supposed to be a joyful time of year full of high spirits and goodwill, but there are some points to be aware of when HMRC pull on their Grinch outfit!

Staff parties

Everybody enjoys a good Christmas party, but what is and isn’t allowable as a business expense?

The cost of an annual party – up to £150 per head – is a tax deductible expense as long as it only entertains staff and their partners/family where invited.

A party is not considered a benefit to an employee, provided that it is an annual event, open to all members of staff (although they need not all attend) and the total of all such annual events during the tax year does not exceed £150 per head (inc. VAT).

The limit per head includes partners/family members of staff too, as long as the invite was extended to them.

As in 2020, due to Covid if you opt for a virtual party rather than an in-person party, HMRC are happy to extend the £150 per head allowance to the costs incurred in providing food, drink and entertainment for the event.

If you have no staff other than directors, the costs of providing a Christmas party do not qualify for tax relief.

Gifts to yourself and staff

You can give gifts worth up to £50 to each employee and director which is considered a trivial benefit by HMRC, meaning that no tax or NI is payable upon the gift. The gift cannot be cash or a cash voucher and must be a genuine gift rather than a reward/bonus for work.

Although there is no additional tax or NI to pay on qualifying trivial benefits, the costs incurred are not tax-deductible expenses for the business.

If the cost of the gift totals more than £50 (including delivery charges) then the whole amount will be subject to tax and NI on both the employee and employer.

For directors of close companies, the maximum value of trivial benefits that can be received each tax year is £300.

Gifts to your clients

Gifts to clients, of up to £50, can be made, so long as they carry advertisement for the business (logo, branding etc) and are not alcohol, food, tobacco cash or cash vouchers.

Gifts meeting the above criteria are tax deductible for the business, however if the cost exceeds £50 or the item gifted is one of the exempt items above, then the whole amount is disallowed for tax purposes.

Christmas bonus

In the same way as bonuses paid throughout the year, any Christmas bonus will need to be paid through payroll and will have tax and NI deducted from it.

Christmas cards

Sending Christmas cards is a tax-deductible expense, although you may wish to go green like ourselves, and donate to a charity instead. This donation would also be allowable to deduct from profits prior to calculating the Companies tax liability.

Further options

Other tax efficient ways to thank your staff;

– Allow an extra half day holiday for Christmas shopping.

– Consider extra time off to allow parents or grandparents to watch the school play.

– Maybe you could arrange a team-building day with a local charity to help at a Christmas event in your area.

This all adds to building staff morale after a tough two years.

Next steps

If you have any questions about tax implications of Christmas expenditure, or would like further advice, please do get in touch and our specialist tax team will be happy to help you.

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