At Christmas time we like to reflect and say thank you to staff and business associates who have supported us throughout the year. We can buy gifts or take them out for meals but is this tax allowable and can we claim the input VAT?
Can I buy staff gifts at Christmas time?
Yes ‘trivial benefit’ gifts up to the value of £50 are exempt from Tax and National Insurance for both the employee and employer. To be treated as a trivial benefit all of the following must apply:
- The value must be £50 or less
- The gift must not be part of the employees contract or a reward for performance
- It must not be cash or cash vouchers
- Non cash vouchers, gift vouchers and gift cards may be considered a trivial benefit and therefore allowable
- The legislation does not have a limit on the number of trivial benefits an employer can provide
- Directors or other Office Holders (& their families) of close companies have their exemption capped at a total of £300 per tax year
Be aware if the gift is above £50 the whole gift is liable to tax and national insurance not only the amount above £50
Can I claim the cost of a Christmas party for staff?
Yes the cost of Christmas Parties or other annual functions are tax deductible expenses for businesses and you can reclaim any input VAT. This will not apply to sole traders or partners of unincorporated businesses, it will apply to their employees. There will be no chargeable benefit for the employee as long as the following apply:
- The function must be open to all employees
- The cost per head must not exceed £150 per year
If the cost exceeds £150 per year the whole benefit is taxable
The cost per head must include any transport, room hire, prizes and any other costs associated with the function
If you invite spouses, relatives, customers, suppliers the ‘entertainment’ provided to non-employees would be blocked for input tax
Can I buy Customers/Suppliers gifts at Christmas time?
If you purchase gifts to give to business associates as an appreciation of goodwill these are treated as business gifts. In general, business gifts are classed as entertaining and are not eligible for tax relief but there are some exceptions.
- If the gift has a value of £50 or less and it’s purpose is to advertise or contains an advertisement, this will be eligible for tax relief
- If more than one gift have been given to the same recipient, the total value of the goods must not exceed £50 during the accounting period