With shopping centres slowly filling up and presents beginning to be wrapped, it is no secret that Christmas is most certainly on the way.
While many people may groan at hearing a mention of Christmas in November, business owners must start reading themselves for the festive rush.
However, Christmas preparation is not just about ensuring you have enough stock. It can also be the time to make the most of tax allowances available to Businesses.
Why do I need to plan my Christmas spending?
Christmas is an excellent time for businesses to show appreciation to their staff. However, it can often bring additional expenses, including staff events, staff presents and client gifts.
Understanding how these benefits can fit into your tax plan beforehand can help you to avoid unexpected tax bills and open you up to some much-needed allowances.
Before bosses start splurging on their staff and clients, they need to review budgets to ensure that this fits within their tax plan.
Understanding Christmas gifts for employees
Under HMRC’s trivial benefits rules, employers can provide gifts to employees without triggering Income Tax or National Insurance liabilities.
However, these gifts must be worth less than £50 per employee, including VAT and cannot be a cash voucher.
Employers cannot offer this as a reward for work performance or meeting targets, and it cannot be a part of an employer’s contractual entitlement.
The gifts could be anything from a Christmas hamper to a pair of fluffy socks. If you are giving your employee a gift card, it must not be able to be redeemed in cash.
It is important to note that if the gift exceeds the £50 limit, the entire value of the gift can become taxable, not just the excess.
Understanding gifts for clients
It is common for business owners to want to thank some of their clients over the festive period for all of the support that they have shown over the year.
Business owners must remember that the tax treatment for professional contacts differs from that of staff.
Generally, client gifts can qualify for tax relief if the gift carries business advertising or branding, is not food, drink, tobacco or a voucher and if the gift to the recipient does not exceed £50 in a 12-month period.
Some examples of gifts that would qualify are branded diaries, calendars and desk accessories which emboss the company logo.
If the gift falls outside of this, businesses may have to pay VAT on the gift.
How can we help?
Christmas is the time of giving, but businesses should ensure that they are giving in the most tax-efficient way possible.
By understanding the rules around employee gifts, client presents and festive entertainment, business owners can reward staff, strengthen client relationships and spread seasonal goodwill while making the most of available allowances.
For support with the tax treatment of Christmas gifts, get in touch with our team.
