With Christmas nearly upon us it’s likely you will get caught up in the festive spirit and want to show your appreciation to customers, clients and, of course, your hardworking staff. Here is a quick reminder of how to deal with the tax on seasonal gifts and benefits.
If employees are given a seasonal gift, such as a box of chocolates or bottle of wine, as long as the cost is reasonable and only ‘trivial’, HM Revenue & Customs (HMRC) won’t seek to tax it. Unfortunately, HMRC does not define what it considers as ‘trivial’ but in our experience less than £50 a head is usually acceptable. If the value of the gift is more than this, it is likely to be taxable and should be included on the employee’s P11D, or alternatively, the grossed up tax can be paid by the employer through a PAYE settlement agreement (PSA). Christmas presents paid in cash or vouchers to employees will always be taxable along with other earnings.
There is a tax exemption for employee entertaining, but this depends on whether:
- It is an annual event (such as summer or Christmas party)
- It is open to all employees
- The cost is less than £150 per head (including VAT)
If the party meets these conditions, no tax or reporting is required however if the cost of your party goes over £150 per head then unfortunately all the costs (not just those above £150 per head) are taxable as a benefit in kind. The £150 exemption can only be claimed once a year. It is also important to note that the cost of the party is the whole cost of the event, from the start to the end, so taxis and overnight accommodation would be included. If your employees can bring guests, you must be aware that the amount of £150 per head applies to all those attending the function not just employees.
Any money spent on non-employees, such as clients or customers, is viewed as entertainment and that means the VAT on that proportion of expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.
HMRC also allows you to give gifts to clients, but they must be business related and carry a clear advertisement for your business, such as promotional branded items; they cannot be alcoholic or food.
The rules governing business expenses are complex, so do contact us if you have any questions.