The festive period is upon us, so what better way is there to get in the spirit than with an early Christmas present from HM Revenue & Customs?
Let’s start with the most festive of questions:
Are Christmas decorations tax deductible? Well yes, generally they will be deductible if you buy a specific set of decorations for your office.
If you operate from a home office, it’s unlikely that your festive décor will be justifiable as ‘wholly and exclusively’ for your business. Therefore you will struggle to get a tax deduction.
Customer gifts at Christmas
At this time of year, many businesses like to send gifts to the customers and clients. By default, this type of expenditure is not tax deductible.
There are a couple of ways to achieve a tax deduction for a gift to a customer:
- Give customers free samples of your product
- Give Christmas gifts that contain clear advertising for your business which:
- Cost less than £50
- Are not food, drink, tobacco or vouchers that can be traded for cash
Employee Christmas gifts
When it comes to giving gifts to your team at Christmas, the tax rules are a little more generous. However, they do come with a list of criteria for it to work!
The tax law that covers this type of gift is more commonly known as the Trivial Benefit rules.
Your gifts need to be:
- Worth not more than £50. It’s all or nothing, so if the gift is worth £52, it’s all taxable.
- The benefit is not cash.
- The benefit is not provided in recognition of the employee’s service (say hitting a target) or part of their contract
- It can’t be part of a regular series of gifts. HMRC gives an example in their guidance of a cake each Friday.
- The company needs to incur the expense. You can’t reimburse yourself or your team member for the cost.
- This rule still applies to you if you are a single director – so buy yourself something nice :- ).
If you are VAT registered, the VAT may well be reclaimable (under the normal rules).
The Christmas ‘Do’
If you are thinking of celebrating Xmas with a night out, there are rules for ‘annual functions’ that make this tax deductible. More details on this can be found in our blog on company annual functions, but here’s a brief summary of the key .
- The cost must be no more than £150 per head (incl. VAT). That’s the total of all costs, including taxis and hotels, etc.)
- This is not an allowance. If you spend £151, the full amount becomes a tax issue
- The event must be open to all staff.
- Don’t bring customers or clients if you want to maximise the tax efficiency!
- You can bring family members, as long as the primary purpose is still clearly to entertain the team.
- If you are a team of one, this still applies!
Final Tip (or trap!) on the above
The allowances and limits set above are aimed to be tax efficient. This is not a ‘cap’. You can spend what you like, but these are the limits if you want the best treatment tax-wise. Spending over these limits often has a tax bill associated with it!
I’ve still got questions about Christmas and tax…
As with all things tax related, seek individual advice on your specific situation to get the right answer for your business. You can ask your accountant or book a consultation with us to help you. Book one of our paid 1 hour, 1-2-1 consultation, and you can ask us all your Christmas and other questions too if you wish.
Oh, and Merry Christmas to one and all. We reckon this year we’ll all be happy just to be together and having fun again. And fun doesn’t have to be expensive.