With Christmas "dashing" towards us like the proverbial one horse open sleigh, there is one question accountants are always asked at this time of year. It's as inevitable as the Queens Speech, Christmas Crackers and those terrible, maudlin acoustic covers of pop songs set to some snowy scene used to advertise a high street chain or supermarket.
"If I buy my clients and staff Christmas presents through my business, can I offset the expense against my profits and therefore reduce my tax?"
Briefly setting aside the potential to use them as a business expense, gifts for clients or employees can be a great way to express thanks and build relationships and goodwill, which in turn should benefit your business. And of course this year in particular, many businesses have a lot to thank their customers and staff for, after what has been an incredibly difficult time for many.
However HMRC guidelines as to what you can and can't buy and how much you can spend are quite specific if you are intending to write off the expense, and so it is worth checking the rules.
Gifts to clients and Associates
HMRC allows you to claim a business gift worth up to £50 to any one person in any one tax year as an expense. However these gifts must not be food, alcoholic beverages or tobacco or indeed vouchers which can be exchanged for food, alcohol or tobacco. The gifts must be business related (such as a diary/calendar etc) and carry conspicuous advertising for the business, such as the company logo.
If the gift costs more that £50, HMRC will disallow the entire amount, not just the amount over the £50, so you would not be able to claim this as an expense.
Gifts to employees
Gifts to employees are generally taxable on the staff member unless classed as trivial benefit, which HMRC defines as (source: https://www.gov.uk/expenses-and-benefits-trivial-benefits)
it cost you £50 or less to provide (in a year)
it isn’t cash or a cash voucher
it isn’t a reward for their work or performance
it isn’t in the terms of their contract
Additionally you can only spend up to £150 per employee on a company party, (although that is unlikely to be an issue this year, unless you have an elaborate Zoom party in mind!)
With that said, the party can be held at any time of the year, and businesses may split the party into multiple, separate events as long as the expense per employee does not exceed £150.
In the same way as purchasing gifts for clients, if you go over the maximum spending limit of of £150 per employee, the entire amount will be made taxable.
So if you are intending to make gifts from your business this year, do keep these rules in mind if you are also planning to claim these as expenses in your own accounts.
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