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Riz Wasti from 2E Accountants looks at some of the main tax challenges presented by this festive time of the year, and how to handle them without getting stung by the taxman. Riz Wasti writes:
1. The Office Party
Happily, there is a tax exemption for employee entertaining. But before you deck the halls with abandon, take note: the HMRC stipulates that this relief applies only to one or more annual parties available to all employees, where the total cost of said parties does not exceed £150 per head (for all attendees - including clients and guests of employees).
It's worth sticking closely to the Christmas party budget, then, for going over this amount by even a fiver makes the whole cost of the event taxable as a benefit in kind.
2. Christmas Cards and gifts to/from third-party
Christmas cards to clients and prospects are considered an office expense and are deductible, provided that the cards carry a clear advertisement for your company. So be sure to take advantage of this cheerful way to remind clients and customers of your business offers, and sail into the New Year on a tide of goodwill.
Christmas wouldn't be complete without the bottle of Dom Perignon from the client with whom you've had an exceptionally good year, or the box of truffles from the prospective client looking forward to a productive new relationship. Happily, any small client gift, promotional or otherwise, if under £50 in value is tax-exempt for you as an employee. Anything over will need to be reported on employee’s P11D and tax paid.
Christmas gifts from you to clients are classed as 'entertaining', and aren't tax deductible for corporation tax purpose.
3. The Christmas Bonus
Any Christmas gift in the form of the monetary bonus is taxable like all other earnings. Just put it through as per your usual PAYE system. The voucher, another popular option, is handled the similar way - an employee must pay tax on its full value.
Small tokens like gift baskets and bottles of wine, on the other hand, are unlikely to be taxable within a reasonable cost bracket. If the value of a gift is more than £50, you had best report it as a benefit on the employee's P11D, or pay the tax as a PAYE settlement agreement (PSA) as above.
Follow the above, and you should keep on the sweet side of HMRC, employees and clients, as well as keeping the Christmas spirit.
Finally, always check with your advisor or HMRC for your specific needs as rules can change every year.
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Susie Hughes © Shout99 2014
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