We get lots of questions about the tax implications of parties, client gifts and staff benefits etcs, especially around Christmas time. So this little guide should help you to explain some of the most important aspects to consider...
Are staff Christmas parties tax deductible?
OK, this may not be the year of the Christmas parties, but if you are planning a bijou party for your work bubble or are postponing your festive gatherings to a future post-Covid period (a Summer party perhaps?), then you need to know this information!
You can spend up to £150 per head annually for each employee - for example for a christmas party or summer bbq. It must be open to ALL employees. So if you are a husband and wife team, owner directors of your own limited company you can have a nice meal out to the value of £150 each on the company and it can be counted as a tax deductible business expense. BUT if you have an employee you must also invite them to the dinner.
Limited company Christmas party allowance vs benefit
Be careful though, this isn’t an allowance. If the bill is over the £150 per head limit, even if just by £1 then the whole amount becomes a benefit in kind the employee must pay tax on, so be very careful with your budget for any celebration - and remember this is an annual budget.
If you have a Christmas party and a summer BBQ for example, you have to take the total amount spent into account and divide by the cost per head and keep it under that magic figure of £150 per head.
This limit also applies to online or virtual parties, so if you are delivering party drinks/food at home to employees for a virtual celebration, consider that in your annual budget too.
No Christmas party cheer for the self-employed
Sadly this is not an option that is available to sole traders or partnerships, it is only available for employees (including directors of their own limited companies). Bit Grinch-like isn’t it?
Are Christmas promotions tax deductible?
Advertising all year round is tax deductible business expense and so christmas advertising and promotions is no different. So go wild and get your marketing message out there by all means possible!
Are gifts to employees tax deductible?
Gifts to employees are generally tax deductible but it is important to follow certain rules if you don’t want your employee to have to pay additional tax on the “benefit in kind” which would kinda suck as a gift.
Trivial benefits rule allows you to buy gifts for your employees up to £50 per gift and claim the tax deduction. There is no cap on the number of gifts you may buy your employee over the year but in order to qualify as a “trivial benefit” they must not be in any way a reward or exchange for services. SO, if you buy your employee a bunch of flowers as a reward for them hitting targets, this cannot count as a trivial benefit and they may have to pay tax on the value of the flowers they received. BUT if you buy your employee a bunch of flowers just because you are a lovely boss and want to do a nice thing, providing it’s less than £50 it's classed as a trivial benefit. Don’t worry, you get a lot of flowers for £49!
Be careful though, it can't be cash or a cash voucher - but it can be a store voucher, so you could give your employee a £50 voucher to spend in their favourite shop, which I am sure they would really appreciate.
Directors can enjoy this gift benefit too. However, there is a cap of £300 per director per year if you are a close company with 5 directors or less.
So, if you are a director of your limited company you can treat yourself with up to £300 of gifts per year as long as each of those gifts are no more than £50 each (so 6 x £50 gifts). You won't have to pay any personal tax and it will be counted as a tax deductible business expense.
Are Christmas decorations tax deductible?
And possibly the best news? The cost of Christmas decorations at your business premises is tax deductible! Sadly this is not the case if you run your business from home but if you have separate premises such as an office or shop, then you are good to go so spread that festive cheer. Lord knows we all need it this year!
If you have some questions about how to manage your Christmas gifts and bonuses then give us a call to see how we can help you.
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