Festive tax tips 2013 – Christmas parties, bonuses, gifts to staff and customers

No doubt many of you have started planning the staff Christmas party, so as Christmas starts approaching I answer your festive tax questions in advance of any cash outlay!

Q: I want to give my staff a cash bonus at Christmas.  How I can I do this tax efficiently?

A:  Unfortunately a cash bonus needs to be taxed at source under Pay As You Earn.  Have you considered alternative bonuses such as a gift of a mobile phone?  The mobile phone will not be subject to any tax or national insurance on the individual (it is not classed as a benefit in kind) and it is deductible from the total profits of your business when calculating Corporation Tax.  This covers only one mobile phone for each employee, but the phone can be used for both business and private calls.  The contract must be between the company and the phone provider.

Q: What is the tax position on hosting a Christmas party for my staff?

A: The basic position is that employers can spend up to £150 per head on annual staff events without it being treated as a taxable perk.  It is also a tax allowable deduction for the company. The event must be open to all of your employees.  You can spend your £150 per head however you like: on food, drink, entertainment, accommodation or travel. But spend £151 and the whole amount becomes a taxable benefit for the employee.

Q: Can I invite customers to the staff Christmas party?

A: The good news is that everyone who attends gets a £150 allowance, including guests; this covers spouses and partners, and even customers if they are invited to what is predominantly a staff event.

Q: Can I claim the VAT back on the staff Christmas party?

Only vat on the cost which relates to your employees is recoverable. The proportion of vat relating to the spouses and customers at a Christmas party is not recoverable.  Also, do note that the £150 exemption limit includes VAT, even if you reclaim it.

Q: What can I give to staff for Christmas with no tax implications?

A: You may find the following Revenue concession useful – “An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.”

Q: What can I give to customers as Christmas presents that is tax allowable? 

A: Gifts to customers are only allowable as a tax deduction if:

  • The total cost of gifts to any one individual per annum does not exceed £50 and
  • The gift bears a conspicuous advert for the business and
  • The gift is not food, drink, tobacco or exchangeable vouchers.

As with Christmas parties you need to be careful, as if the gift costs more than £50 (including gift wrap) the whole amount will be disallowed.

Common examples of allowable gifts are diaries, pens and mouse mats. The advertisement should be on the gift itself, and not just on the wrapping.