How to give tax friendly gifts to staff and customers this Christmas

Christmas gifts

Christmas is just round the corner and you’re probably wondering how you can thank your hardworking staff and show your appreciation to your clients.

But how do you go about it without making the taxman happy at the same time?

1. Staff Christmas party

You are probably already aware that the cost of a staff Christmas party or another annual function is an allowable tax deduction for businesses.

Costs can include food, drink, tickets to events, accommodation and taxi fares and also applies to any ‘partners’ invited along. Just remember to follow these simple guidelines:

  • your staff Christmas party should be open to all employees.
  • The cost per head should not exceed £150 including VAT per person. This amount is the cost per head across the full year, so if you held a summer BBQ, then you will have less to spend on the Christmas event.
  • Any money spent on non-employees is viewed as entertainment. This means the VAT on that proportion of the expenditure cannot be claimed back, so make sure you keep track of the split between employees and non-employees.
  • If the party is only for partners or directors of the business, then the VAT incurred can’t be recovered. So best to invite some regular employees along!

This allowance applies to businesses of all sizes, so even if you only have one or two employees, you can still have a good time! But whatever you do, don’t exceed the £150 per person limit. If you do, then the entire amount will be disallowed.

2. Christmas gifts to staff

While you can’t give your staff a cash Christmas gift, you can give them a present, as long as HMRC deem it as trivial. So, a box of chocolates, for example, would be considered trivial, but a food hamper would be considered a decent present and therefore taxable.

Follow these guidelines and  you won’t go far wrong. The Christmas gift:

  • must cost £50 or less
  • can’t be a cash voucher
  • mustn’t be a reward for performance
  • can’t be in the terms of their contract. 

If you do want to give you staff vouchers, then it needs to be a non-cash one, such as for a meal or a spa treatment. And, don’t forget that you’re also classed as a member of staff, so remember to treat yourself as well.

3. Christmas gifts to your customers

You can give your customers Christmas gifts, but only if:

  • It is business related. This means it can’t be food, drink or tobacco, unless they are samples of your products. Also, you can’t give vouchers.
  • The total cost to one individual per year is less than £50
  • The gift has an obvious advert for your business – think branded mugs, pens or coasters

And remember client entertaining is never an allowable deduction for business tax purposes.

4. Christmas bonuses

Giving a Christmas bonus is probably the easiest option, but HMRC will consider it as additional salary, so any Christmas bonus will be subject to PAYE and NI.

Need more help?

If you are still unsure, whether your Christmas gift idea for either your staff or customers is tax deductible, then just get in touch. Over the years, we’ve worked with numerous clients of all sizes from around the High Wycombe area and would be happy to help.

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