With the season of gift-giving fast approaching, it's important to be sure that you're up to date on the rules around gifts for clients and staff - and making the most of any tax-free opportunities!
In general, HMRC advises that businesses treat gifts in the same way that they treat entertainment. This means that, with a few key exceptions, gifts are not tax deductible. But what are those exceptions and how can you make the most of them?
The office Christmas party is of course a tradition, but did you know it is also tax deductible? Staff annual functions can be tax-free where the total cost per person attending is not more than £150 per year (including VAT).
This will apply to everyone attending the party, including employees and their guests. It can also be used for other expenditure which is part of the event, such as taxis or accommodation for the attendees.
A big caveat is that if you overspend the amount per head then the whole cost of the party is subject to tax, not just the proportion that exceeds the limit. This will need to be paid by reporting the benefit on the employee's P11D form, or the grossed up tax can be settled through a PAYE Settlement Agreement (PSA). A further national insurance bill will also be payable - so be sure to get the sums right!
Seasonal treats for clients and staff may also be deductible, but in order to qualify they must be seen as promotional gifts. This means displaying a ‘conspicuous advertisement' in the form of your company logo. But with many options available for personalisation, it's incredibly easy to give meaningful gifts while staying tax free. These could be anything from calendars and diaries to stress balls and festive snow globes.
Promotional gifts can be given to staff tax-free providing the overall cost does not exceed £50 per person per year. It's important to note that gifts of food, drink, tobacco and vouchers are specifically excluded from this scheme.
Tax efficient charitable donations can be made through Gift Aid, or in cash, stock or investments. There are various tax efficient schemes and incentives for individuals, sole traders and companies so it pays to make sure that your gifts are deductible depending on your business size. Detailed HMRC rules on the subject can be found here.
Third party gifts, which employers may receive from third parties such as business associates or clients, are exempt from tax providing their total value is less than £250. It is very important to be aware of anti-bribery rules when dealing with such gifts. In many cases simple ‘common sense' can be applied to tell when a gift should be accepted. Anti-bribery rules now mean that even those aware but not directly involved may be found culpable should such an illegal transaction take place.