Festive Q&A

November 6th 2018

Christmas might be the season of goodwill but you still need to be aware on the tax implications for gifts, parties and even decorations this festive season.

Q.  Can you claim tax relief on Christmas decorations?

A.  The good news is that unless you work from home, you are able to claim tax relief on the cost of Christmas decorations and tree for your workplace. By putting these in your accounts as day to day running costs so that they reduce the amount of profit you pay tax on.

If you do work from home (even if you have a dedicated office space within your home), HMRC would almost certainly say that these are for your personal enjoyment rather than for business, and wouldn’t allow you to claim them.

Q.  Is there tax relief on gifts to clients?

A.  If you are planning to give valued customers and suppliers a Christmas gift such as chocolates or a bottle of wine, you should record the cost of these gifts as business entertaining.

Unfortunately, you normally can’t claim tax relief or reclaim VAT on these gifts, unless they:

• Contain a conspicuous advert for your business, and
• Are not food, drink, tobacco or a voucher that’s exchangeable for goods, and
• The cost of the gift and any others to that individual in the accounting year is under £50

This is the reason why so many businesses give logo-embossed diaries and pens as Christmas gifts!

Q.  Christmas parties for staff or clients – what’s the difference?

A.  Christmas parties are a great way to show how much you appreciate your team and clients, but there are different rules for tax depending on who attends your party.

The main tax implication of staff Christmas parties is whether you need to report the cost of the party as a taxable benefit for your employees. In some cases, you can throw a staff party without incurring any extra tax for you or your employees.

If you want to have a Christmas party for anyone other than your staff, HMRC would consider this to be business entertaining, so while you should still add it as a cost in your business books, when you are calculating your profit for tax you should add these costs back on, so that you don’t claim any tax relief. You also can’t reclaim any VAT on these costs.

Q.  What are the tax implications on Christmas bonuses and gifts for staff?

You may want to show your appreciation to your staff for their hard work with a Christmas bonus or gift. If you are planning to do this, here is some good advice about what tax impact your gifts may have.

If you decide to pay your staff a Christmas cash bonus, this is treated the same way as regular earnings, so you should run it through the payroll and pay PAYE and National Insurance on it as normal.