Tax Rules on Christmas Gifts
During the festive season, spreading some cheer to your clients and staff with Christmas gifts shows you care. However, it is important to remember the Tax Rules on Christmas gifts and that even during the holiday season, HMRC still enforces certain rules and regulations regarding giving gifts. Therefore, it is crucial to understand the essential information regarding the Tax Rules on Christmas gifts. By doing so, you can ensure that you remain compliant and avoid any unpleasant surprises in your Christmas stocking!
To begin with, sending Christmas cards is a tax-deductible expense. However, many companies choose to donate to a charity instead of sending cards.
You can also give your employees gifts, up to the value of £50, with no tax implications for the employee. This falls under the trivial benefit exemption, meaning no tax or NI is payable. However, it is essential to note that this exemption does not apply to cash gifts. Non-cash vouchers up to £50 may also be exempt under the trivial benefit rules.
If you choose to spend more than £50 on a gift, it will count as a taxable perk for the employees receiving it, meaning they will have to pay tax, and you, as the employer, will have to pay National Insurance.
If you choose to give your employees a cash bonus, it will count as earnings, meaning you will need to add the value to your employee’s other earnings and deduct and pay PAYE tax and Class 1 National Insurance through payroll.
When gifting to customers, the gifts will only be allowable for tax purposes if they carry a clear advertisement for the business, with branding or logo, and must not include alcohol, food, drink, tobacco, or vouchers. Non-promotional and larger gifts are classified as entertaining and not tax-deductible as an expense.
However, it is important to remember that if your business only has one or more directors and no other employees, the rules for tax relief and VAT deductions differ and a maximum of £300 per year can be spent on trivial benefits. In such a scenario, the cost of providing entertainment solely to directors or partners is not eligible for tax relief or VAT deduction.
VAT
If you are not using the Flat Rate Scheme, you can reclaim the VAT incurred on purchasing the gift. However, you may have to account for VAT on the value of the gifts if they exceed £50 in a year. You will not have to account for the VAT if a gift is exempt or zero-rated, such as a book.
In summary, while spreading holiday cheer is important, it is also crucial to understand the Tax Rules on Christmas gifts. By following the rules and regulations HMRC sets, you can ensure compliance and avoid any unpleasant surprises come tax time.
As a considerate employer, there are ways to boost staff morale during the festive season. For instance, consider allowing an additional half day of holiday for Christmas shopping. Or why not arrange a team-building day with a local charity to help at a Christmas event in your area?
You may also consider providing extra time off for parents or grandparents to watch their child’s school play. By implementing such measures, you show your staff that you care about their well-being, which ultimately leads to a happier and more productive workplace.
If you want to know more about tax rules on Christmas Gifts, drop us a line, and we can discuss your specific requirements.
