Tax friendly gifts for staff or clients
As the days snowball towards Christmas, it's likely you'll
get caught up in the festive spirit and want to show your
appreciation to clients and hardworking staff. But how do you give
them a thank you gift without either of you feeling shortchanged by
the taxman?
The Christmas party
Aside from remembering not to embarrass yourself, HMRC also
requires that you abide by a few rules when arranging the yearly
Christmas party.
HMRC will allow you to spend £150 tax-free on each employee at
the Christmas party.
The small print
- Any money the company spends by inviting partners or spouses of
employees is eligible for tax. This is providing the total
expenditure for the party, including the non-employee guests,
amounts to £150 or less per employee attending.
- As a small company, you are still able to claim up to £150 per
employee for any Christmas celebration, even if just two or three
employees attend.
- Any money spent on non-employees is viewed as entertainment
that means the VAT on that proportion of expenditure cannot be
claimed back, so you will need to show the split between employees
and their non-employee guests.
- If the entertainment is only for the partners or directors of
the business then the VAT incurred is not input tax and cannot be
recovered. But, if they attend a party with regular employees, then
the tax is seen as input tax and is recoverable.
- Do not exceed the £150 per person limit as this will mean the
entire amount is disallowed, not just the excess over £150.
A gift to a client
HMRC allows you to give a gift worth up to £50 to a client in
each tax year.
The small print
- It must be business related; it cannot be alcoholic, food,
tobacco or vouchers that can be exchanged for those things.
- The gift must also carry a clear advertisement for your
business; otherwise it would be classed as entertainment
expenses.
- The £50 budget includes the gift-wrapping so go easy on the
wrapping paper. If you do go over the limit the gift will be
disallowed and liable for tax.
A gift to staff
It's worth remembering that all Christmas gifts to staff are
classed as taxable benefits, except if they're deemed trivial. Only
then are they exempt from tax.
Small print
- A bottle of wine or a small box of chocolates are examples of a
trivial gift. However, a box of wine or a food hamper are seen as a
decent present and therefore, not trivial and completely
taxable.
- All gifts of money (apart from Suggestion Scheme awards, see
below) such as bonuses must be put through the payroll system and
are subject to tax the same as wages.
Suggestion Scheme awards
You can reward an employee for making a suggestion that shows
special effort on the employees' part. These are also known
Encouragement Awards and are exempt from tax, but only up to a
limit of £25.
Another strand of the Suggestion Scheme awards are the Financial
Benefits awards. These are also exempt from tax and can rise to an
overall tax-free limit of £5,000. To qualify for one of these the
suggestion must meet the conditions below.
Small print
- It relates to an improvement in efficiency or
effectiveness
- You must have decided to adopt the suggestion
- You must reasonably expect the suggestion's implementation to
lead to a financial benefit
- 10 per cent of the financial benefit you reasonably expect in
the first five years following adoption.
A food gift
- You can provide your employees with free catering and no VAT
will be due on the supply.
- If you take a member of staff out for a meal as a reward, then
there is a supply of goods made by the restaurant direct to your
employee and no input tax is deductable by you.
For more information click here
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