You may be decking your office with boughs of holly but are you making the most of some Christmas tax reliefs or ways to leverage your money this Christmas? In this guest post Jonathan Amponsah CTA FCCA, CEO of The Tax Guys 12 ways to reduce your tax bills this festive season.
1. Tax Free Business Gifts to Customers
These are allowable as a tax deduction if the total cost to each customer per year is less than £50 and the gift bears a conspicuous advert for the business and it isn’t food, drink, tobacco (unless they’re samples of your products).
2. Encouragement Awards
With your business in festive mode why not award some staff members for their outstanding contribution to your business and for going beyond the call of duty?
You can pay your staff tax free income for suggestions that benefit your business. You can give encouragement awards – for good suggestions, or to reward your employees for special effort. Encouragement awards are tax free up to £25.
3. Financial Benefit Awards
You can also give financial benefit awards – for suggestions that will save or make your business money. Financial benefit awards are exempt up to £5,000.
Please note for both types of staff awards, as with all tax reliefs and tax exemptions, there are conditions to meet before you go ahead and pay your staff tax free income this Christmas. For example, the suggestion scheme must be open to all your employees.
You can read more about conditions on HMRC’s site, search EIM06600.
4. Tax Free Gifts
In addition to awards, gifts you give to your employees are normally exempt from tax and NI. However, this exemption only applies if the gift is deemed to be considered a trivial benefit i.e. costing £50 or less, and not being part of the employees’ contract or a reward for performance. It must also not be a cash reward as HMRC will tax this as earnings (payroll tax). Classic gifts, including a bottle of fizz or chocolates, would be exempt from tax.
5. Tax Efficient Vouchers
If you give your employees cash vouchers, the amounts would need to be put through the payroll and subject to tax and National Insurance. Non-cash vouchers up to £50 may be exempt under the trivial benefit rules. Where the voucher exceeds £50, you will need to report these on a P11D form to HMRC.
6. Tax Free Parties
An employer can spend up to £150 per head including VAT per year, in providing annual social functions to entertain staff. This £150 is per head and not per staff member.
To work out the cost per head, divide the total cost by the number of attendees (staff and any other guests). When employees’ spouses and partners attend the event you can budget for £300 per couple. The £150 is not an allowance. It’s an exemption and so if the cost per head works out at £151, then the full £151 is taxable and not just the £1 excess. So, do watch out for attendees dropping out last minute as this could spoil the “tax party” for you and your staff.
To keep HMRC happy, ensure that the annual event is a staff social event and open to all staff. Plus, do keep proper records especially on the number of attendees. For more info search for EIM21690 on HMRC’s site.
7. Client Entertainment – contractual obligations
Ok, so you’ve read somewhere or you’ve told by your accountant that client entertainment is not tax deductible. And this is true. However, there are a couple of so-called exceptions to the rules.
Firstly, contractual obligation: Where it’s part of your business to entertain, say if you’re providing a training course to businesses and you entertain them as part of the course – maybe providing tea, coffee, lunch and so on. Even if it’s food, you’re still allowed to claim that because you’re under a contractual obligation to give them food.
8. Client Entertainment – Quid pro quo
Secondly, quid pro quo: Let’s say you’re a freelance journalist and you want to speak to say Andy, a man who has a world of experience on a topic you’re writing about. You offer to take Andy out to lunch this Christmas in exchange for his insight into the topic which you’re researching. Because Andy is coming to the table with something of value but not benefitting from it apart from getting a free lunch, you’re actually allowed to claim the expense, even though it appears as entertainment.
In order to keep HMRC happy, do have plenty of evidence to support your claim.
According to a recent study by Gallup, about 60% of employees are not engaged in the work they are doing. This is not good news for most employers. However, most employees do look forward to Christmas. Why not capture this mood and announce some good staff retention and performance incentives at Christmas?
You can consider things like tax efficient share option schemes if appropriate or tax efficient remuneration packages. How about Christmas shopping half day off? This may well save you some New Year recruitment costs.
10. Long Service Awards
Let’s say you have an employee who has worked for you for a very long time. It’s time for them to move on and you’ve both decided that December will be a good month to say your goodbyes. You can give them a non-cash award of up to £1,000 if certain conditions apply. Search HMRC’s site for ‘long service award’ for more details.
11. Inheritance Tax Free Gift
Gifts between family members are normally dealt with under the inheritance tax code subject to the various reliefs and the seven-year rule. Luckily, the inheritance tax code has some pretty generous reliefs and exemptions including an annual exemption of £3,000 and a small gift exemption of up to £250 a year.
12. Plan for next year
If you’ve missed out on some tax deductible Christmas expenses, plan ahead for next year with advice from accountants/specialist tax advisers.
Enjoy the 12 days of Christmas!
Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant, and the CEO of The Tax Guys. www.thetaxguys.co.uk