Gift giving is a well known and valued Christmas tradition. It is generally accepted that you give gifts to those you hold dear in order to show your gratitude and appreciation for their support throughout the year. As business owners it is important to make both your staff and your loyal customers feel valued and appreciated, especially at this time of year. A great way to do this is through Christmas gifts… and the added bonus… you can do it all tax free!
Gifts to Employees
HMRC guidance EIM21863 tells us that employers can provide their employees with tax free gifts at Christmas time so long as they can be classed as “trivial benefits” of employment. The gifts cannot be contractually obliged or expected as part of their employment in order to qualify for relief.
Although HMRC don’t give specific guidance as to what constitutes a “trivial” gift, it is generally accepted that £50 per head is an acceptable value.
Bonuses to Employees
If you decide to provide your employees with a cash bonus or shopping vouchers at Christmas time then be prepared for a tax bill. Any addition cash or cash equivalents given to employees are classed as additional employment income, and as such is liable to income tax and national insurance at the appropriate rates.
Gifts to Customers
In almost all circumstances business entertaining (including gifts) is disallowable for tax relief. There is however an exception to this rule. If the gift supplied to the customer meets the following criteria then tax relief can be claimed:
- The gift(s) contains a conspicuous advertisement for your company. This branding should be on the gift itself and not just on the packaging.
- The gift(s) given to the customer do not exceed a value of £50 in any given tax year.
- The gift(s) is NOT food, drink, tobacco or a token or voucher exchangeable for goods.
Common examples of such gifts are diaries, pens, calendars and mouse mats.
Gifts from Customers / Suppliers
You may find during this festive season that you or your staff are given gifts from your customers or suppliers. It is important to assess this situation carefully, as it may end up being a taxable benefit on you or your employees.
The gifts received are not subject to additional tax so long as they meet the following criteria:
- The gift(s) is not cash or something that can be converted to cash (e.g. vouchers).
- The gift(s) value does not exceed £250 in any one tax year.
- The gift(s) is not made in recognition or anticipation of any services by you or your employees.
Gifts to Charity
Generally speaking, gifts given to charity at Christmas are treated like donations, and as such are deductable against the trading profits of the company (hence gaining corporation tax relief).
So if you are choosing to get into the Christmas spirit this year then make sure you do it in the most tax efficient way. The allowances are out there, so make sure you use them!