With Christmas around the corner, a few of our clients have been asking “can we claim gifts to customers and a Christmas party as an expense?” In this article we look at the tax and VAT implications.
Can I give gifts to customers, suppliers, banks or my accountant?
You can send gifts to the value of £50 to any one person in any one tax year. For a gift to qualify for tax relief and for you to be able to claim the VAT back, it must carry an advert of your business. For example: logo-embossed diaries, pens, and bottle openers are all allowable. Food, drink, tobacco and vouchers are not allowable, even if they carry an advert for your business.
If you’re registered for VAT, you must pay VAT to HMRC if you make gifts worth more than £50 a year to any one person.
Do staff parties count as a business expense?
Being the season of goodwill, HMRC allow you to take your employees out for a party. The party can be any time of year or spread over several events during the year. The spend per employee should not exceed £150. If you go over the £150 limit, then the entire amount will be disallowed (not just the excess over £150) and will also have to be declared on a P11D as income, and the employer will have to pay Class 1A National Insurance.
If husbands, wives or partners attend, the expense will still be allowable if the total amount including guests is no more that £150 per employee in attendance.
Example 1: Three employees attend the party. The total allowable is £450 between the three of them.
Example 2: Three employees attend a party and each brings a guest the total spend is still £450 between 6 of them.
VAT can be claimed on the proportion of employee’s costs, however the VAT element on the guest expense needs to be disallowed.
Do gifts to staff count as a business expense?
Christmas presents up to £50 per member of staff, can be given to employee’s tax free. You can claim VAT back on these amounts (if VAT registered) and your business gets tax relief on the deductible expense. You MUST NOT exceed the £50 limit. Even if you go over 1p, the amount becomes a taxable benefit for the employee and tax and NI is due. Gifts of cash and bonuses must be put through the payroll system in the usual way.
Can Christmas decorations be claimed as a business expense?
You can claim full tax relief and VAT on decorations for the office. If you’re a homeworker HMRC take the view that they are for your personal enjoyment and therefore disallowed for tax and VAT.
If you’re unsure about what to claim, or need further advice, feel free to contact us on 0151 931 2724.