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November 8, 2023
By Anthony Andreasen, director at RMT Accountants & Business Advisors
While the temperatures have generally stayed on the warm side of balmy during October, the arrival of both shorter days and enormous amounts of festive merchandise in Tesco’s can only mean that Christmas is on its way.
While the tax implications of the season of goodwill to all men probably aren’t at the front of business owners’ minds as their festive preparations begin, there are a number of areas that they need to be considering if they want to avoid an unexpected New Year bill from the taxman.
For example, the cost of staff Christmas parties is a key issue. HMRC’s rules state that employers are allowed to spend up to £150 (including VAT) on annual event such as this without it being treated as a taxable perk, and you can spend it however you like, ie on food, drink, entertainment, accommodation or travel.
Spouses, customers and other guests can also be invited to the party and receive the same £150 allowance. However, the event must be open to all of your employees, and if you spend over the £150 limit, it will instantly be treated as a taxable benefit for the employee.
You can recover VAT on the part of the event costs that relate to staff, but not on that which relates to any other guests.
HMRC’s take on gifts to staff is that ‘trivial’ items like a box of chocolates, a bottle of wine or event a turkey can be given without any tax implications arising
In terms of tax allowable gifts to customers, the total cost of presents given to any one person should not exceed £50 in a calendar year – if the cost is more than that, including the cost of the wrapping, it will be disallowed.
Gifts should not be food, drink, tobacco or exchangeable vouchers, and there should be “a conspicuous advert for the business” on the item (rather than just on the wrapping).
Finally, while the idea of Christmas bonuses has become a little less common in recent years than it once was, any such payments made to staff need to be taxed at source under Pay As You Earn, as they would be at any other time of the year.
Glass of eggnog, anyone?
Anthony Andreasen is director of corporate tax at RMT Accountants & Business Advisors