I think we can all agree that Mr Taxman is nowhere near as generous as Santa Claus, nor are you likely to find him dressed in a big red suit.
It’s the time of year when we give to others. For small businesses, when deciding on how to ‘give’ to others at Christmas, there are a few questions that need to be considered:
- Can I claim tax relief on the expenditure?
- Are there any PAYE or NIC implications?
- Can I deduct any VAT incurred?
Here is a brief summary of the main types of giving at Christmas and the tax considerations for each.
Good news: Paying a bonus to your staff is fully deductible as a business expense.
Scrooge news: The bonus forms part of normal salary and employees are liable for PAYE and NIC (yes, even if it’s paid in cash!)
Good news: The cost of the Christmas do for your staff is fully deductible as a business expense. It must be open to all employees. VAT can be deducted on the cost of the party.
Scrooge news: There is a limit of £150 per head and this includes invited partners (so essentially £75 per head). If the cost exceeds this, the employee is subject to PAYE and NIC on the full cost! VAT cannot be reclaimed on ‘director only’ parties, and VAT should be apportioned if partners are included as this element doesn’t get input VAT relief.
Good news: You can send Christmas cards to clients and customers and other small promotional items up to £50 and claim full tax and VAT relief for the business. Make sure a clear element of advertising is part of any gift (i.e. corporate branding or logo). Gifts to employees up to £50 are covered by the ‘trivial benefits-in-kind’ exemptions so your staff aren’t subject to PAYE or NIC.
Scrooge news: Gifts of alcohol or food are generally a no-no, and any ‘pure’ gifts with no promotional aspect are classed as entertaining and not deductible for tax purposes, so the business loses tax and VAT relief. Gifts to employees are not tax deductible either!
This time of year also brings along emptying your pockets to pay your tax to HMRC. The vast majority of limited companies in the UK have financial year-end dates of either December or March, whilst self-employed persons have upcoming deadlines under Self Assessment:
- Limited companies with a December year-end date must file thier CT600 Company Tax Return with HMRC by 31 December
- Limited companies with a March year-end date must pay corporation tax for their previous accounting period by 1 January
- Everyone under Self Assessment must file their tax return with HMRC and pay any tax they owe (including any payment on account for the current year) no later then 31 January
- Don’t forget that quarterly VAT returns up to 30 November must be filed by 7 January and there are much less workings days to get this done over the Christmas period
A little bit of planning around all of these things will really help and make sure your business get maximum tax relief on what it spends at Christmas, whilst putting money aside throughout the year towards the business tax bill helps soften the blow when it’s time to pay.