Christmas Gifting Expenses Guide, for Limited Companies.

Christmas is fast approaching, and in the season of goodwill, you may be thinking of hosting a gathering or buying a few gifts for colleagues or customers. Here’s a quick reminder of the relevant tax relief rules, so you can be generous without running into trouble with HMRC.

Christmas Parties

Entertainment for clients is not a tax-deductible expense, but an event for staff and their plus ones certainly is.
So, your limited company can claim its Christmas party as a deductible expense against corporation tax as long as you observe the following rules.

  • It’s open to all staff

For a party to be tax-deductible, you must ensure total company inclusion. That means all of your employees and directors must be invited. A party for one particular team or a ‘directors only’ party would not be exempt from tax. If you are a one-person company, you and your plus one can still enjoy a festive celebration as a deductible expense.

  • You spend no more than £150 per person

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

You must take care not to go over this limit. Even doing so by just a nominal amount will mean you can no longer claim the tax exemption. If you do overspend, the entire cost will be treated as a benefit-in-kind (BIK) and subject to additional tax and NI.
From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

  • You claim VAT correctly

VAT on the cost is recoverable but only if you charge each guest a nominal fee. The fee is subject to what’s known as ‘output VAT’ and needs to be included in the company’s VAT return.

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

Hospitality for Clients

Client entertaining generally is not allowed for corporation tax or VAT purposes, so you cannot claim tax relief for the costs of inviting your clients to your Christmas party. That doesn’t mean you can’t invite them – you certainly can, but if you do; then it is important to separate the staff and client costs and apportion appropriately for tax purposes.

Gifting

You can give small, low-value gifts such as wine and chocolate to employees and company directors and this can be exempt from tax and classed as ‘trivial benefit’. There is a limit, however – to be tax-exempt the value must not exceed £50 including VAT. If the cost exceeds £50, the full amount is taxable.

When buying gifts for directors and other office-holders, the total amount provided by the company cannot exceed £300 altogether. Again, you cannot give  cash or a cash voucher, and you must keep a receipt for your purchase. Also, the employee must not be entitled to the benefit as part of any contractual obligation, and the benefit must not be provided in recognition of services performed as part of their employment duties.

From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

Ask for advice – before you spend!

If you’re thinking of hosting a party or buying Christmas gifts through your limited company, it’s a good idea to check with your Clever small business accountant first. For further information and advice around the tax rules of Christmas parties and gifting, please get in touch.

Christmas gifts guide for limited companies

Posted by Editorial