How To Make Your Christmas Tax Deductible

Christmas is just around the corner and many business owners will be ‘splashing out’ on gifts, parties, awards and other kind gestures to end the year on a high.

There are a number of tax reliefs available for your annual Christmas gifting habits. See the information below for some of the ways in which you can make the most out of your business gifting reliefs and have a Merry “Tax Deductible” Christmas.

Gifts to Customers and Suppliers
You can send gifts to the value of £50 (including VAT) to any one person, per tax year. A qualifying gift must carry an advert of your business for you to be eligible to claim tax relief or any VAT back. This can include anything with your company logo embossed on it, for example pens, diaries or calendars.

If you are VAT registered, you must pay VAT to HMRC if you make gifts worth more than £50 per year, to any one person.

Gifts to Staff
You can give staff Christmas presents up to £50 (including VAT) per staff member, tax free. You can claim the VAT back on this expense and your business gets tax relief on the deductible expense. Please note, if you go over this £50 limit by even 1p, the amount becomes a taxable benefit for the employee, and tax & NIC is due. Exception: – Gifts of cash and bonuses must be put through the payroll system as any other gross employee payment would.

Staff Parties
As it is the season of goodwill, HMRC will allow you to take your employee’s out for a party. The annual spending limit is £150 per employee. This £150 can be spent at any time of the year and it can be spread over a number of events. Please note: If you go over the £150 annual limit, then the entire amount will be disallowed (Not just the excess over £150) and it will also have to be declared on employee’s P11D’s as income.

If employee’s partners attend the party, the expense will still be allowed if the total amount including guests is no more than £150 per employee in attendance. VAT can be claimed on the employee’s proportion of costs, however the VAT element on their guests’ expense must be disallowed.

Charitable Donations
What is Santa’s favourite form of tax relief? “Gift” Aid!

Individual Taxpayers: When you donate with gift aid, the government will “Gross-Up” your contributions by adding 25p to every £1 you donate to a registered charity, provided your donation is not more than 4 times what you have paid in tax, in that specific tax year. Once you have made a Gift Aid declaration, your basic and higher rate tax bands are extended by the gross charitable donation, thereby increasing the proportion of your income taxed at the lower rates.

Companies: Donations gifted by a company are an allowable expense, which means the expense is tax deductible.

 

Jessica Alexander
 
Trainee Chartered Accountant