There are lots of additional costs on the lead up to Christmas in small businesses so what is allowable??
These rules are for any social event throughout the year, but a lot of people associate them with a Christmas party.
To be exempt from tax and national insurance the party must be;
- An annual event!
- Open to ALL employees! (Not just your besties)
- Costs less than £150 (including VAT) per employee (This includes if you pay for transport and accommodation too.)
If you have different departments/locations, you can have different parties, but all employees must be invited to one of them.
If your parties don’t tick all the above, then you’ll have to complete a P11d for each employee and pay national insurance on the cost of the party! (If you have 100 employees and have no other benefits this is going to be a bit tedious!)
If you have a Summer BBQ and Christmas Party, they must both add up to less than £150 per employee to be exempt.
If your Summer BBQ costs £100 per employee and the Christmas party £60 per employee (therefore over £150 altogether) you can’t have both exempt. Here it would be beneficial to exempt the first one as it is a higher cost (you can choose which one). This means for everyone who attends the Christmas Party it will be a benefit and taxable, even if they didn’t go to the Summer BBQ.
Generally, staff entertaining is tax deductible but remember supplier/customer entertaining is not tax allowable.
So basically, don’t invite customers or suppliers to your Christmas Party too – you mess up the tax benefit AND you’ll have to chill out on the gins!
Gifts for employees
If you’re self-employed, you don’t have to report or pay tax or national insurance on personal gifts (eg birthday, christmas or wedding presents) that you give to employees.
If you are a director of a limited company and are looking to treat your employees to Christmas gifts;
You don’t have to pay tax on a trivial benefit (gift) for your employees if;
- It costs you £50 or less (£50.01 is not allowed!)
- It isn’t cash or a voucher exchangeable for cash
- It isn’t in the terms of their contract
- It isn’t a reward for their work or performance
You don’t need to pay tax or national insurance or tell HMRC (no p11d).
What about treating yourself as a director?
If you are a director of a close company (a limited company run by 5 of less shareholders) you can have up to £300 worth of trivial benefits annually.
So as well as your Christmas gift you can treat yourself to a Birthday gift, Anniversary, Easter, Valentines and…. Summer treat?
Remember though… you may have to pay tax on any gifts that don’t meet all these criteria or if there is any salary sacrifice.
Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to run this through the payroll as usual.
Gifts to suppliers or customers
If you are generous and providing gifts to suppliers and customers, these can be tax deductible if you follow these simple rules;
- The gift cant be food, drink or a voucher.
- The gift needs to be branded with your logo or other advertisement.
- The gifts to the customer or supplier should exceed £50 in a year.
Any gifts that don’t meet these criteria will not be allowable.
However, while no tax relief is available, a limited company can still pay for the expense. This is better than paying out of your own pocket, which would be from income that you have paid personal tax on.
If you have any questions about any of these areas then please get in touch
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Thank you for reading this weeks blog – VAT – A simple explanation for new VAT registered businesses.