Gifting at Christmas: can businesses be taxed?

by Michael Blaken

This year more than ever, we all need a little Christmas cheer. For businesses owners, that may mean offering gifts to your staff and to your contacts, or providing some entertainment.

However, it is important to remember that the taxman is never far away, so before you don the Santa outfit and start distributing presents, familiarise yourself with what does or does not incur any tax.

If you are overly generous, you may need to pay tax and National Insurance. Moreover, if you fail to declare taxable gifts, then you could also face penalties from HMRC.

Business entertaining at Christmas

The office party will be somewhat different this year. If there is a party at all, it is likely to be virtual, but there are many ways that a virtual party can go with a swing, and that may mean providing some kind of paid for entertainment.

So it is important to know that the maximum you can spend per employee is £150 and this is the allowance for the whole year, not just Christmas, so do take into account what you have spent so far.

Tax rules on Christmas gifts

There are also tax rules around giving and receiving gifts, which apply all year and not just at Christmas

• 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 the items can’t be counted as trivial benefits, you must report them 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.

The rules are slightly different if you are self-employed. Here, you don’t have to report or pay tax or National Insurance on personal gifts (such as Christmas presents).

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

Optimum Professional Services are Swindon accountants working with business owners across Swindon, Wiltshire, Gloucestershire, Oxfordshire and Thames Valley.