What Christmas expenses can small businesses claim for?
by Accountant Ruth Hardman
We Love Pets Accountant advises small businesses what kind of things they can claim for during the festive season.
To be tax deductable these must display advertising for your business for e.g. business details on a festive sticker.
A staff party or an annual function qualifies as a tax-free benefit for your employees providing that you meet the following conditions:
- The total cost must not exceed £150 per head, per year.
- £150 includes VAT together with any extra costs such as transport and accommodation.
- The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
- The event must be primarily for entertaining staff.
- The event must be open to all staff (in that location, if you have several branches or departments).
- The event is not just to be for directors, unless all your staff are directors.
- The cost of the whole event is an allowable expense for your business.
Sole Trader/Partnership Caveat:
- If you are a sole trader or partner in a partnership the cost of your attendance at the Christmas party is not tax deductable.
VAT on staff parties
- You can claim back input VAT but this may be restricted where you are also entertaining customers.
- VAT is recoverable on staff entertaining expenditure but not for ‘partners’ (of staff) so input VAT would need to be apportion
Any entertainment of customers/suppliers etc. is not a tax deductable expense for the business or Company.
VAT on client entertaining
Input VAT cannot be claimed on any entertainment.
Business gifts to customers
The general rule: No tax relief given on the cost of making business gifts, as by default they are treated as entertaining.
- An item provided in its business in order to advertise to the public generally (e.g. a free sample).
- An item incorporating a conspicuous advertisement provided that it costs less than £50.
- Not part of a series of gifts to the same person which come to more than £50 in that accounting period.
- No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
VAT on gifts to customers:
- Where a business makes gifts in excess of £50 or makes a series of gifts to one person exceeding £50 it should account for output VAT (Sales VAT) on the value of the gifts.
- Output VAT does not need to be accounted for where a gift is a free sample of the business’s product.
Gifts to staff
- Non-contractual gifts to employees under £50 (per employee) will be seen by HMRC as trivial benefits and not classed as taxable benefit for the employee.
- Trivial benefits are capped at £300 per tax year for directors, office holders and their families.
- A gift made by an employer to an employee is deductible in the employer’s accounts, unless gifts are also provided for others and the gifts provided to the employees are incidental to those.
VAT on gifts to staff
VAT is reclaimable on the cost of an employee’s gift if VAT has been charged when purchasing the gift.
Amounts paid to employees as Christmas bonuses are taxable as employment income and subject to PAYE and NI.
The provision of seasonal ‘flu jabs’ are not taxable benefits to employees and the cost is tax deductible for the business and/or company. (Sole trader/partnership: Only the cost for employees is allowable not for yourself)