Background
Whilst Boris has recently stated everyone should carry on with their Christmas parties as normal, many business are likely to have already made the decision not to hold a staff Christmas party this year and instead may have arranged seasonal gifts for their staff instead.
When providing business gifts, whether to staff or others, it should be remembered there is no special tax concession for the Christmas period, and business will need to ensure they comply with the special rules for VAT and other taxes whether at Christmas or any other time of the year!
Detail
Direct tax
The general rule is that businesses are not entitled to a tax deduction for the cost of a gift unless it is “wholly and exclusively” for the purpose of the entity’s trade.
Gifts to staff are generally tax deductible since they represent a legitimate business expense, and there is no limit on the amount that can be spent provided the expenditure meets the wholly and exclusively test.
However, gifts to staff in excess of £50 (including VAT and related costs such as delivery charges) will count as a taxable benefit for the employee. In such instances the employee will pay tax and national insurance (NI) on the gift and the business will pay Class1A NI at 13.8%. Many businesses are unlikely to want their employees to suffer tax on a gift they give to them. Therefore if the business wishes to cover the cost of the tax on the employee this will increase the overall cost of the gift to the business.
Where the cost of a Christmas gift is limited to £50 or less per individual and provided the gift is not in the form of cash, e.g. as an additional amount in their salary, then no tax or NI will arise. Gift vouchers are a good example of an allowable tax-free gift where the value is no more than £50.
Gifts to customers or other parties are not entitled to a tax deduction regardless of their cost, with one exception.
A non-staff gift will be eligible for a tax deduction for a business provided:
- It displays the business logo/name or other conspicuous advertisement for the business; and
- Costs less than £50 and is not part of a series of gifts to the same person within the same accounting period, which in total cost more than £50; and
- The gift is not in the form of food, drink or tobacco.
Reclaiming VAT on gifts
Businesses can reclaim VAT paid on gifts to staff, customers, suppliers etc.
However, where the value of the gift exceeds £50, or the total value of gifts to the same person within a twelve month period exceeds £50, a business must also account for VAT (unless the gift is exempt or zero-rated) when they make the gift as if it were a sale.
If you would like further information on any of the issues raised above, please contact our Tax Director, Jenny Marks.
Our Current working arrangement – We remain ‘Open for business’
Our staff are gradually returning to office based working, whilst continuing to work from home at other times. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.
To see our other news items please visit our Muras Baker Jones – Blog.