Christmas is coming but don't expect any great presents from the Taxman.

It can also be a confusing time of year as to exactly what the rules are surrounding Christmas gifts and parties. It's made worse by the fact that the rules for VAT are different as well.

Christmas Gifts

• Gifts to customers are not an allowable business expense unless they are free samples of products or carry a conspicuous advertisement and cost not more than £50 per person per year. They must also not be food, drink, tobacco or gift vouchers.
  
  
• The VAT position is that you can reclaim the VAT as long as the cost is no more than £50+vat per gift to each client. Interestingly, you can still reclaim the vat if it is drink or tobacco.
  
  
• Trivial benefits can be provided to employees under the banner of staff welfare such as a turkey, box of chocolates or bottle of wine without them being taxable on the employee. There is no fixed limit but they should be reasonable. They would be tax allowable and vat reclaimable for the employer.
  
  
• Employees can receive gifts from third parties without them being taxable on them up to £250 (including VAT).

Christmas Parties

• You can spend up to £150 per employee on parties during the year, so if you've not had any other parties that leaves £150 for the Christmas party.
  
  
• The party must be open to all staff or all of a particular division or section. If the only employees and husband and wife company, the party can be solely for you!
  
  
• The VAT can be claimed back in full on the Christmas party.
  
  
• It's ok for the spouses or guests of employees to attend the party but VAT cannot be reclaimed on this expense. It will be necessary to split the bill between the different guests for this purpose.
  
  
• The only applies to employees, not sole traders and partners.
  
  
• If you go over the £150 figure, the whole amount is taxable on the employee, not just the excess. If just over the limit consider getting the staff to contribute to keep the cost under £150. Not very Christmas like but better than a tax bill for them.
  
  
• The cost of the Christmas party is tax deductible for the employer, even if over £150 per head, unless it is excessive.
  
  
• If the party is for customers and staff the cost will not be allowable if the entertainment of staff is just incidental.

If you're still confused, please contact us for advice.

NEXT STEP:
Please contact us if you have any queries on this news release or ask a question.