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Christmas gifts and entertaining: what businesses should know

by Iain Mason

Published on 8th December 2019

With the season of good cheer upon us, many employers may be feeling a little more bountiful than usual and want to reward their hardworking teams.

However, if you are an employer, then before you dust off your cheque book make sure you are aware of the rules governing gifting and entertainment. Otherwise, if you are overly generous you may find you incur tax and National Insurance costs for yourself, your staff or your customers! HMRC have strict rules on gifts and entertainment costs.

Rules governing staff entertainment

The first thing to remember is there is a maximum you can spend per employee, of £150 each. This allowance is for the whole year and not just the Christmas party, so it is important to tot up what has been spent so far. Spending beyond this limit will create issues.

It is also important to be aware that all spending contributes to the allowance, including any transport or accommodation, food or beverages you provide. If you are planning a free bar and taxis home, then £150 per person may not go far!

Rules governing gifts

There are also tax rules governing the giving and receiving of gifts.

  • Cash bonuses: any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to add the value to your employees’ other earnings and take off tax and National Insurance through payroll.
  • Goods: it is only free to give a gift to an employee, client, or supplier if the gift is ‘trivial’ in HMRC’s eyes. If they can’t be counted as trivial benefits, you must report on form P11D and pay National Insurance on the value of the benefit.

For you, the donor, the gift is non-tax deductible. There are also complex rules governing gifts to a third party – for example, if you make gifts to a supplier’s employees. If you are not sure of the rules, it is important to seek advice before going ahead.

For the self-employed remember you do not get tax relief for any of the costs incurred on gifts or entertaining for customers or suppliers.

If you would like more help or advice on the topic of gifting and entertainment, then please get in touch with the tax team here at Optimum.

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