We’re coming to the end of what has been a difficult year. 2020 is certainly a year most of us will be glad to see the back of. Regardless of the current COVID restrictions, Christmas will be a welcome relief bearing in mind all the uncertainty this year. Christmas is a time for giving and a time to offer gifts to our loved ones, friends and work acquaintances. HMRC has certain rules on the tax implications of giving and receiving gifts, even though it is Christmas. Here we look at some of these tax implications and rules on Christmas gifts and also on festive celebrations.
Inheritance Tax itself is worthy of a substantial article in its own right. here we look solely at the relevance of gifts. There is usually no IHT to pay on small gifts you make out of normal income. These are known as exempted gifts and include Christmas and birthday presents. A gift is defined as –
Exempted gifts include as many small gifts of £250 per year; £3,000 worth of gifts each tax year and normal gifts out of your income. HMRC state you must be able to maintain your standard of living after making the gift.
If you are operating as a business, Christmas Card are a tax-deductible expense. Many companies now choose not to send Christmas Cards and prefer to donate that money to charity. If you have a limited company you can deduct the donations from your profits to pay less tax.
If you are a Limited Company you can give all of your staff a gift of up to £50. You can also gift yourself the same amount because the company is gifting you! The gift below £50 counts as a trivial benefit exemption so no Tax or National Insurance is payable by the employer. Gifts to employers are not a tax-deductible expense for the business however. The gift doesn’t apply to cash but non-cash vouchers are included. Gifts such as chocolate, bottles of champagne etc are also included.
If you give a gift over £50 it’s classed as a taxable perk for the employees that receive it. The Limited Company would also have to pay National Insurance on anything over £50.
There is a requirement for gifts over £50 to promote the company with clear advertising, such as a company logo. The branding must be on the gift itself. HMRC class non-promotional gifts and larger gifts as entertaining and are tax-deductible. The gifts can’t be food, drink, vouchers or alcohol. Large gifts and gifts that don’t have any company branding are categorised as entertaining and are not tax-deductible.
If you give a cash Christmas bonus to an employee it will need to be included in the employee’s earnings. The monies will need to go through payroll and will be included in PAYE and Class 1 National Insurance calculations.
HMRC have a £150 allowance per employee which includes food, drink and entertainment. This still applies for virtual Christmas parties. HMRC have a requirement that the party must be available for all company staff to attend. Companies can claim the VAT back for employee costs, but not partners or clients.
As with gifts over £50, gifts must carry company branding on the gift itself, not just the wrapping. Similar exclusions apply and the gift can’t be food, drink, alcohol, vouchers or tobacco.
You may be able to claim the VAT back on gift purchases. If the gift is zero-rated there will be no VAT applicable. Furthemore, if gifts are less than £50 to a recipient there will be no VAT. You may have to account for VAT on gifts that account for more than £50 for
If you are on the Flat Rate Scheme there will be no VAT exemptions on gifts.
From everyone at Kinsella Tax we wish you all a Merry Christmas and a Happy New Year.