With the Christmas season quickly approaching, we are often asked what employers can buy staff and customers for Christmas and what tax relief, if any, is available. So here’s a quick summary to remind you.

Christmas Cards

Expenses incurred for Christmas cards/e-cards are classed as office expenses and are tax deductible.

Client Gifts

You are also allowed to send small promotional gifts to customers and if they cost less than £50 each and carry a clear advertisement of your company, will be tax deductible. Anything else will be classed as entertaining.

Christmas Party

Everyone loves an excuse to have a party, however, HMRC do have strict rules on what you are allowed to spend before it will be classed as a benefit to your employees.
HMRC has three rules which you must adhere to to ensure your party is exempt from reporting:
  1. £150 (inclusive of VAT) or less per head; and
  2. an annual event (such as a Christmas or summer party); and
  3. open to all employees.
You must keep in mind that if you have both a Christmas & summer party, the £150 per head is spilt over the two events. If you go over the limit then unfortunately, the whole event is taxable as a benefit in kind to the employees, not just the excess over £150.
Also, it is important to remember that the £150 limit is to cover the event from start to finish and therefore includes taxis and accommodation if provided by the business.

Including guests

One last thing to keep in mind when organising your event, when calculating the cost per head, this includes all attendees not just your employees. If you have 5 employees and they each bring a partner, bringing your party to 10, then a £1,000 party will be deemed to cost £100 per head.
VAT does have a slightly different treatment where partners of employees are concerned. Their element of the cost is not allowable for VAT, so you must apportion the overall VAT between all of guests and only claim a proportion relevant to the number of employees attending.

Employee Gifts

You may also want to reward your employees with a small Christmas gift. Any cash gifts or vouchers provided are taxable along with their other earnings.
If you provide a seasonal gift such as a turkey, a bottle of wine (within reason!) or some chocolates then HMRC won’t deem this to be taxable as long as it is “reasonable”. Unfortunately HMRC will not give a monetary value of what “reasonable” is but in our experience anything less than £50 per head is usually acceptable.

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