Ho, Ho, HMRC!

It's party time, when you give gifts and provide entertainment for your hard-working staff. But before you start splurging, it's important to know what is taxable and what isn't.

Thank you, team!

Christmas cards are tax deductable, but be careful when it comes to gifts.

Cash bonuses are treated like any other salary payment and are subject to tax and national insurance, but non-cash gifts can fall under the rules for trivial benefits, you can give gifts or gift vouchers as long as they are under £50 and can't be redeemed for cash. You can give more than one £50 voucher to the same person.

Anything exceeding a value of £50 (including VAT) will need to be reported on the P11D – and tax and national insurance will be applied on the full amount.

Let's party!

Before you push the boat out and start building a champagne fountain, think carefully about how you spend your entertainment budget.

£150 per employee, per year is tax deductible and a tax free benefit for your employees. That includes any festive frolics and also other events, such as summer picnics or a day at the races. If you blow your budget at Christmas, that means your employees will end up paying tax on what you spend on other events, as the costs will appear as benefits on their P11Ds.

That means that £150 per person has to cover food, drink, entertainment performances, venue hire and transport. A nice meal out could be a better idea than a knees up in a private venue for everyone. It depends on how many people you employ as to what would be viable. For larger organisations it might be worth considering giving each department their own budget and letting them choose how it's spent.

When is a gift not a gift?

The festive season is often a time when business owners want to thank their customers and suppliers with a gift. Gifts come under the heading of business entertainment. There are no tax allowances for this, unless you can convince HMRC that it's an essential part of your marketing. Note that word 'essential' – you'll need to prove to them that it would damage your business if you don't do it!

The only way gifts become tax deductible is if you include your branding, like branded pens, T-shirts, paperweights, then it becomes a promotional product.

In the same way you can gift products that you sell or manufacture, without it be being disallowed for tax purposes, as this constitutes marketing a 'free sample' as it were.

When it comes to VAT – the whole issue of VAT in relation to gifts is, frankly, confusing! The best advice is to talk to your accountant and let them give you some guidance on each specific issue.

It seems a bit harsh that during a time of goodwill HMRC have all these rules, but it's wise to know where you stand so you don't end up with the festive cheer going sour.