Christmas is coming, the goose is getting fat……
…..please do not put a penny in the taxman’s hat.
As the festive season approaches for another year, we thought it would be appropriate to send a reminder of the tax treatment of seasonal gifts.
Tax relief for the business
The cost of staff parties is an allowable expense for the business and therefore tax relief for the employer is usually achieved, assuming that there are no clients or customers at the party. If there are, it may be appropriate to consider an apportionment of the costs to be allowed.
Tax relief for the employee
Usually where an employer provides a benefit to an employee (company car, medical insurance, interest free loan etc) then there is a national insurance charge on the employer and a tax charge on the employee.
However, there is a tax exemption for employee entertaining, as long as certain rules are adhered to.
In this case, the party must be an “annual” event (but not necessarily at Christmas), available to all staff and the cost (including VAT) must be less than £150 per head.
If the cost exceeds £150 per head, it will be necessary to declare the full cost (not just the cost over £150) on forms P11D.
It should be noted that if you provide travel to and from the venue and /or overnight accommodation, that these amounts will need to be included when deciding whether the cost of the event exceeded £150 per head.
Furthermore, employees can bring along their spouse or partner if the cost per head stays under the limit.
If the cost exceeds £150 per head, then the benefit will be reported on the employee’s P11D. However, to avoid any issues that this may cause, the employer could settle the employee tax bills via a PAYE settlement agreement (PSA).
If the employer makes a cash gift, then this is taxable as earnings under PAYE. It will also be subject to national insurance.
Similarly, gift vouchers are also within the PAYE tax and national insurance charge.
If instead, a seasonal gift such as a turkey, a box of chocolates or an ‘ordinary’ bottle of wine is given, then these can be treated as ‘trivial’ benefits and HMRC won’t impose a tax charge.
A gift of £50 per head should be regarded as trivial and therefore outside the scope of the tax charge.
If the gift exceeds this value, then the value should be included on the employee’s P11D or alternatively declared via a PSA.
Third party gifts to employee
Occasionally a customer or client may wish to make a gift to an employee of the business due to service received during the year.
If the gift does not exceed £250 (including VAT) and is not in cash or vouchers it should not be taxable on the employee.
Gifts to clients and customers
HMRC will allow you to claim a business tax deduction for a gift worth up to £50 to a client / customer in each tax year.
However, there are certain exceptions as the gift must:
- Be business related and not an alcoholic, food or tobacco product or vouchers that can be exchanged for those products.
- Carry a clear advertisement for your business, such as a calendar or diary.
However, the £50 budget includes any gift-wrapping!
If you do go over the limit the gift will not be an allowable expense.
Generally, input tax on entertaining is not a recoverable expense. However, it is where the entertaining relates to employee entertaining, but this does not extend to partners or spouses of existing staff or indeed any former employees. Therefore, the VAT reclaimed will need to be apportioned.
If the entertainment is only for the business owners, partners or a sole trader then HMRC will not accept that the input tax has been incurred for business purposes. However, where other staff members attend, the input tax should be recoverable.
Hopefully this general brief gives an overview of seasonal gifts. However, we would recommend that you take specific advice to ensure that any gifts fall within the tax exemptions.
If you are ever in doubt and need some advice, then give us a call today!