Thinking about putting Christmas gifts and drinks through the business?

If so then you need to be aware of the rules for VAT and tax relief.

Staff are treated more favourable so let’s start with them.

If you want to give your employees a Christmas cash bonus then it needs to go through the payroll.

However you can give your staff a gift without PAYE implications if it is below £50 because it is classed as trivial.  BUT it must not be money or a money voucher and must not be a reward for work or performance.  VAT is recoverable but it is not tax deductible. 

You can also hold a Christmas party without PAYE implications if the total spend is less than £150 per head in a year (many annual parties can be held as long as the total annual amount is below £150 per head).  If one event takes you over the £150 per head limit you cannot deduct the whole of that event.  All staff must be invited to the event for it to qualify.

If any non-employee attends the event you cannot recover VAT on their portion and you cannot deduct the cost in relation to their portion.  A reasonable split of the cost needs to be made between staff and non-staff.

Customers/potential customers

To qualify for tax relief, the gift (and all gifts to that person in the same tax year) must be less than £50 and carry a conspicuous advert for your business.  It must not be food, drink or tobacco.  So go for those customised pens and not bottles of wine!

To qualify for VAT recovery the gift cannot be the provision of hospitality.  So the gift of a bottle of wine might qualify for VAT recovery – unless you opened the bottled and poured your client a drink!  However output tax will be charged on this gift if the cost exceeds £50 (ex VAT) so it is best to keep below the £50 limit which is also applicable for tax relief.