Rawlinsons Top Tips forMaking the most of tax relief at Christmas
Rawlinsons Top Tips for&hellipMaking the most of tax relief at Christmas
There’s no better time to reward staff and customers than at Christmas. But the tax man is less generous than Santa and there are certain clauses you need to be aware of before you start popping £50 notes into envelopes to hand out over mulled wine round the office tree.
1. Christmas parties: the cost of these or another annual function is an allowable tax deduction for businesses. This doesn’t however apply to sole traders or business partners of unincorporated organisations. There will be no chargeable taxable benefit for the employee as long as: - the & lsquo;do’ is open to all employees, or all at a particular location if you are a multi-site operation
- the cost per head isn’t more than £150 (the average cost per head mustn’t exceed that amount throughout the year) to include transport or accommodation provided. If the £150 limit is exceeded, staff will be taxable in full on total cost per head.
VAT is recoverable on staff entertaining expenditure but not for partners so input VAT will need to be apportioned.
2. Client entertaining is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
3. Business gifts to customers are only allowable as a tax deduction if the total cost to one individual per year is less than £50, the gift bears a conspicuous advert for the business and it isn’t food, drink, tobacco (unless they’re samples of your products) or exchangeable vouchers.
4. Gifts to staff: In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. HMRC has conceded a seasonal gift such as a turkey, bottle of wine or box ofchocolates can be exempt. However, a case of wine, a bottle of fine wine or a hamper is unlikely to be considered trivial. Strange but true: this concession applies to seasonal flu jabs though your employees may not be quite so appreciative of the & lsquo;gift’!
5. Vouchers: these are subject to tax and National Insurance.
6. Christmas bonuses: these are subject to PAYE and NI as additional salary.
7. Inheritance tax issues: All individuals have an annual exemption of £3,000 for gifts. Gifts of less than £250 a year to each individual are exempt. Any gift above these amounts could be considered a Potentially Exempt Transfer which is exempt from Inheritance Tax providedthe donor survives for seven years. All gifts to spouses are exempt for Inheritance Tax purposes.