It’s the season of giving and, if you’re a business owner, it’s a season of teambuilding and customer appreciation, too.
The festive season presents the ideal time for your business to take stock of the past year. You might be celebrating a recent team expansion or market growth. Or, if your company has encountered setbacks or challenges, this can be a perfect opportunity to help your team mentally reset ahead of the coming new year.
Celebrating the Christmas holidays and New Year makes good business sense, but it doesn’t come free. The cost of office Christmas parties, which may involve transport and accommodation expenses for your employees, as well as corporate gifts, can soon rack up.
The good news is, you may be able to claim back a certain amount of what you spend on gifts and Christmas parties, when they have a business purpose. Below, we break down the types of spending you can claim back for tax purposes.
Business Gifts
To receive tax relief, business gifts to customers or suppliers must not:
- Be food, alcohol or tobacco
- exceed £50 to the same person within the same accounting period
Vouchers are permitted, provided they cannot be exchanged for cash.
To be considered promotional, and therefore deductible, gifts must include a conspicuous advertisement of the company; for example, your logo displayed on the product or packaging. Examples commonly used include calendars, stationery and water bottles/mugs.
Larger business gifts or those not intended for promotion, which are given to customers or suppliers, are not eligible for tax deductions as business expenses.
It’s important to remember that the £50 is not an allowance, so if the gift costs in excess of £50, the amount would be taxable in full.
Christmas gifts to employees, such as wine, chocolates, or flowers, costing under £50 pounds are considered a trivial gift and as such will not incur any tax or NI payable. Cash gifts, or vouchers that can be exchanged for cash, are considered earnings. Therefore, they must be noted on the employee’s payslip and are taxable.
Staff Party/Annual function
According to a recent survey, 77% of UK business leaders view the annual corporate Christmas party as the most important work event of the year. This figure underscores just how much significance is placed on the event, out of all those on the yearly corporate calendar.
While parties for clients are considered entertainment and therefore not a tax-deductible expense, staff parties have a £150 tax-free exemption per head. That is, if the following criteria are met:
- The event is annual. (Christmas or summer BBQs qualify; retirement parties do not)
- All employees must be invited, although they don’t all have to attend. Separate parties for different departments may be held.
- The total cost doesn’t exceed £150 per head, including VAT. (The VAT element can be claimed back.)
- The £150 includes travel and accommodation costs.
- The event must be primarily for staff, but spouses can also be invited and have their own £150 exemption.
As with gifts, the exemption is not an allowance. Therefore, if the cost of the party exceeds £150 per head, the whole amount will be taxable, not just the excess.
Remember, an accountant’s not just for Christmas. Our expert accountancy team can support your business all year round, helping you to navigate the complexities of corporate taxation, employee payroll and more. Contact our team on 0161 703 2500 or email dale.swift@championgroup.co.uk to find out more.
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