While some people might think November is too early to start talking about Christmas, for business owners it is the perfect time to start preparing for the festive season.
Getting ready for Christmas involves more than making sure there is enough stock to meet demand. It is also a good opportunity to look at the tax allowances available to businesses and make sure any festive spending is as tax-efficient as possible.
Christmas is a great opportunity for businesses to thank their employees and clients for their hard work and support throughout the year.
Whether it is organising a staff Christmas party, buying presents for employees or sending gifts to valued clients, these extra costs can quickly add up.
However, with a little planning, businesses can make sure they are taking advantage of the tax reliefs and allowances available while avoiding any unexpected tax bills.
Before making any festive purchases, it is worth reviewing your budget and understanding how different types of spending will be treated for tax purposes.
HMRC’s trivial benefits rules allow employers to give certain gifts to employees without creating an Income Tax or National Insurance liability.
To qualify, a gift must cost no more than £50 per employee, including VAT. It must not be a cash payment or cash voucher and cannot be given as a reward for good performance or meeting targets. It must also not form part of the employee’s contractual entitlement.
There is plenty of flexibility when it comes to choosing a gift. From Christmas hampers and chocolates to cosy socks or a small gift card, there are lots of ways to show employees some appreciation.
If you decide to give a gift card, it must not be exchangeable for cash.
It is also worth remembering that if a gift costs more than £50, the full value may become taxable rather than just the amount over the limit. Keeping an eye on the cost of gifts can therefore help businesses avoid unnecessary tax charges.
Giving gifts to clients at Christmas is a nice way to say thank you and recognise the relationships that have helped support your business throughout the year.
However, the tax rules for client gifts are different from those that apply to employees.
Generally, gifts to clients can qualify for tax relief where they carry a clear advertisement for the business, such as a company logo, are not food, drink, tobacco or vouchers and do not exceed £50 per recipient in a 12-month period.
Examples of gifts that may qualify include branded diaries, calendars and desk accessories featuring your company logo.
If a gift does not meet these conditions, it may not qualify for tax relief and there could also be VAT implications. It is worth checking the rules before making any purchases.
Christmas is all about giving, but that does not mean businesses should overlook the tax implications of their festive spending.
Taking the time to understand the rules around employee gifts, client presents and staff entertainment can help you make the most of available allowances.
It also means you can reward your team, show appreciation to clients and enjoy the festive season without worrying about unexpected tax costs.
For support with tax allowances over Christmas, get in touch with our team.
