Christmas Tax Planning
With Christmas just over a month away, no doubt many of you are already making plans. Given how expensive this time of year can be, incorporating a bit of tax planning into those plans could prove worthwhile. Consider the following as part of your Yuletide preparations this year.
Most offices have some sort of get-together at Christmas. Normally employee entertaining, beyond everyday office refreshments, can create a taxable benefit in kind for those employees. However, there is an exemption for certain events that meet the following criteria.
• It must be an event that occurs annually.
• It must be open to all staff. If a business has multiple locations they can have separate parties for each location, but each party must be open to all staff at each location.
• The cost, including VAT, must be no more than £150 per person. This calculation is made including guests that employees are allowed to bring along in the count.
A party will only be exempt if it meets all three of these criteria. If the cost per person exceeds £150 then the whole amount becomes a taxable benefit, not just the excess.
If you are a VAT-registered business then you can only reclaim the VAT on the proportion of the Christmas party costs related to employees.
Gifts to employees
Gifts to employees at Christmas can also be exempted from being taxable benefits. This is because such gifts will usually qualify as “trivial” benefits that are exempt from the benefit in kind rules. For a gift to qualify as trivial it must meet the following criteria
• It must cost less than £50.
• It must not be cash or a cash voucher.
• It must not be something they are entitled to under their employment contract (i.e. the provision of gifts by the employer is entirely at their discretion).
• It must not be a reward given for specific work done or in anticipation of future specific work to be done.
Gifts to customers
Christmas gifts to customers can be a good way of generating goodwill, encouraging them to continue buying from you in future. Again, there are certain criteria to be met.
• As for employee gifts, the cost per individual gift must not be more than £50.
• Gifts of food, alcoholic drink or tobacco are excluded, as are vouchers that can be exchanged for food, alcoholic drink or tobacco. The exception to this is if the items in question are those the business sells. Promotional samples of a business’ own products will still qualify.
• The gift must include a conspicuous advertisement for the business. If no advertisement is included, the expense will be classified as ordinary business entertaining, which is not tax-deductible.
Gifts from customers
Finally, it is possible that some customers of your business will want to send gifts to your employees. These follow similar rules to those when the business itself makes gifts to employees, but with a more generous £250 cap before it becomes a taxable benefit. As well as meeting the qualifying criteria for gifts to employees, the gift must not come from the employer or anyone directly connected with them and neither the employer or anyone connected to them must have procured the gift.
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