Tax implications for Christmas gifts to clients and staff

For any business, Christmas is a great time to reward staff for their hard work and helpful expertise. Christmas gifts for staff and clients, though, can be a contentious issue. While the giving of a gift is rarely the issue, how you go about handling the tax on this gift can be hard to work out.

Let’s take a look at how you can best navigate what is often a confusing issue for business owners.

Can my business claim tax relief on Christmas gifts?

Typically, you will find that the purchase of Christmas gifts for clients and staff will fall into entertainment. Therefore, this means it might not be tax deductible. Most of the time, entertainment and business expenses for gifts and expenses are not often a tax deductible solution. However, you will find that there are some exemptions to this as to when you could make a gift deductible.

You could, for example, find that there is an advertisement within the gift for your own company. Things like a company t-shirt or a company umbrella would be deemed an acceptable choice. However, anything like food and alcohol will not count – nor will any kind of cash or voucher given. Even if they come with your company logo on the front, they will not count.

The rules are somewhat more relaxed when you make a gift of one of your products, then it might be different. Your industry and how you go about using your products for promotional purposes, often given to the public as promotional gifts, will determine the likelihood of an accepted tax deduction.

It’s important to consider this carefully. What you give out to your clients and staff as a Christmas gift that would still be tax deductible can be a confusing process. If you are unsure, it’s better to say no.

Lastly, if you intend on making any kind of Christmas gift to a charity, then this would also be tax deductible.

What are benefits in kind for Christmas gifts?

The challenge is that Christmas gifts to employees can be tax deductible. It’s important to ensure that gifts are not excessive over the course of the tax year, or it might be treated as what is known as a benefit in kind. If this happens, then it is likely that the employee would have to pay tax on the Christmas gift.

If you can avoid paying more than £50 per employee, then you should be able to avoid the gift being treated as a benefit in kind. This would mean that your gift must not be in return of a salary sacrifice or in respect of any work done either. If you run a close company – a family-owned company in many cases – then you must stay within a £300 limit per tax year for gifts to directors and/or family.

This can, though, be very specific to your own business. If you would like assistance in solving this confusing part of business ownership, it’s important to reach out and find help. Making mistakes with Christmas gifts and their tax implications can become a headache if handled incorrectly. 

Why might my gift be rejected by HMRC?

Of course, HMRC might take a look at a gift you have claimed and consider it exempt if it’s trivial in nature. It might be deemed to be a trivial benefit, which is often something which falls under the cost of £50, and cannot be part of either a contractual agreement or a performance-based reward.

Other such rejections would be money or vouchers. Therefore, you might find that most seasonal gifts like fancy wines, foods and hampers are likely to be the best way to go for a non-trivial gift.

The VAT implications of Christmas gifts

VAT is confusing when it comes to Christmas gifts. You could, for example, claim input VAT on any gift which is purchased for a business purpose. However, don’t think this means that you could sneak in presents for family and friends also, keep in mind that if the gift is given to the recipient within a 12-month period, and totals no more than £50 (excluding VAT), and you have claimed input VAT, then you have to charge output VAT on the total cost of the gift.

Keep this in mind, as it might be easier not to claim the input VAT in the first place. This is one of the more confusing parts of picking Christmas gifts, and should be considered carefully. If you would like help in coming up with a strategy for selection, then don’t be afraid to reach out.

Getting help with your Christmas gift tax issues

Of course, you might have some issues when it comes to dealing with this side of Christmas gifts for clients and staff. Christmas gifts and tax relief can be tricky and it’s better to avoid any innocent mistakes which could become quite costly.

If you are unsure of what to do, then contact us today at Devonshire Green. We can help you to make the right choice, and to put your tax affairs in order. This will help you to make the right choice on Christmas gifts based on our advice, meaning that your goodwill gifts can be a benefit to both the recipient and your business.

Nick Bagga