Christmas Parties and Gifts – What You Need to Know About Tax and VAT

The principles surrounding what can and can not be claimed back on taxation and VAT when it comes to Christmas entertaining and gifts for employees or customers are often very ambiguous and frequently many small business owners don’t realise the terms connected to the principles, so we’ve assembled a simple guide covering everything you want to understand, and what to beware of!

1. Christmas Gifts to Clients

The rule: Her Majesty’s Revenue and Customs (HMRC) allow you to give a gift to a client worth up to #50 in any one tax year.

The conditions:
1. The gift must be a business-related present for example a calendar, pen or clock
2. The present can’t be alcoholic beverage, food or tobacco, or vouchers that may be traded for those three items.
3. The gift must certainly carry an ad for your organization, otherwise it will be classified as entertainment expenditures, and all these are disallowed.

Beware: Gifts that cost more than #50, and that has the gift wrap, will be wholly disallowed by HMRC; it won’t just be the sum over the #50!

2. Christmas Gifts to Staff

The rule: All contributions to employees including Christmas gifts are classed as taxable benefits, although if they’re deemed trivial they’re exempt from tax.

The conditions:

1. Trivial presents can be things such as a jar of wine or tray of chocolates and those are exempt from taxation
2. Monetary gifts, such as bonuses, should be put through the payroll system and taxed in the usual way

Beware: A case of a Christmas hamper does not constitute a trivial present! Make sure you check what is and isn’t classed as insignificant before you buy your staff gifts this Christmas!

The principle: HMRC permits up to #150 per employee for a Christmas party since it is considered a reward for good work or a means of preserving and improving staff morale. The conditions:

If non-employees attend the party, i.e. partners or spouses, cost is allowable for tax. This is supplying the entire expenditure for the celebration, including the non-employee guests, amounts to #150 or less per worker attending.
If you are a small, owner-managed business then you are still able to claim around #150 per employee for any Christmas party or supper, even if only two or three members of staff attend.
Where VAT is concerned, the cost on non-employees is viewed as entertainment that means the VAT on such percentage of this expenditure can’t be claimed back, so you will have to show the split between employees and their non-employee guests.
If the entertainment is limited simply to the partners or directors of a business then the VAT incurred is not input tax and can’t be recovered. However, if spouses or directors attend staff parties alongside other workers, the tax is seen as input taxation and is recoverable. Know moreĀ