From Christmas-themed performance incentives to corporate branded gifts, nothing says Christmas quite like a tax incentive, says Jonathan Amponsah
It is great to give gifts, awards and hold parties during the festive season. Let’s look at how you can be generous and make the most of tax reliefs at the same time.
Employers can spend up to £150 per head including VAT per year, providing annual social functions for staff.
Remember, this £150 is per head. Work out the cost per head by dividing the total cost by the number of attendees (staff and other guests). When employees’ spouses and partners attend the event, you can budget for £300 per couple. The £150 is an exemption (not an allowance); if the cost per head works out at £151, the full £151 is taxable and not just the £1 excess. For more info see EIM21690 on HMRC’s site.
Awards for suggestions
Did you know you can pay your staff tax-free income for suggestions that benefit your business? There are two kinds of awards:
- Encouragement awards – for good suggestions, or to reward your employees for special effort
- Financial benefit awards – for suggestions that will save or make your business money
Encouragement awards are tax free up to £25. But financial benefit awards are exempt up to £5,000. As with all tax reliefs and tax exemptions, there are conditions to meet. See reference EIM06600 on HMRC’s site.
Gifts to employees
Gift to your employees are normally exempt from tax and NI if the gift is deemed to be trivial i.e. it must cost £50 or less, and not be part of the employees’ contract or a reward for performance. It cannot be cash as HMRC will tax this as earnings (payroll tax). Classic gifts, including wine or chocolates, would be tax exempt.
Business gifts to customers
These are only 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 or tobacco (unless they’re samples of your products).
As a general rule client entertainment is not tax deductible. However, if you meet any of the following two conditions this Christmas, you can claim these expenses against tax:
- Contractual obligation: where it’s part of your business to entertain, e.g. if you’re running a training course to businesses and providing tea, coffee, lunch etc. you’re allowed to claim that because you’re under a contractual obligation to give food.
- Quid pro quo: For example, a freelance writer wants to speak to an expert and takes her to lunch. Because she is coming with something of value but not benefitting from it apart from getting free lunch, you’re allowed to claim the expense, even though it appears as entertainment.
Christmas and tax incentives
Recent research by Gallup, suggests 60 per cent of employees are not engaged in their work. However, most look forward to Christmas. So why not announce some good staff retention and performance incentives at Christmas? You can consider tax-efficient share option schemes if appropriate or tax-efficient remuneration packages. What about giving a half day off for Christmas shopping? This may save you some recruitment costs in the New Year.
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. If you make a gift and then survive for seven years afterwards, the gift becomes exempt (i.e. no tax is payable) and therefore falls outside of your estate for tax purposes. The inheritance tax code has pretty generous reliefs and exemptions including an annual exemption of £3,000 and a small gift exemption of up to £250 a year.
Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant, and the CEO of The Tax Guys