Tax Implications on Christmas Gift for Customers and Staff

Do you know customer and staff Christmas gifts which comes into the category of entertaining doesn’t incur any taxes? Isn’t great news? Exactly, as a general rule expenses incurred by a business in offering entertainment or employee gifts are not tax deductible.

However, tax law does offer a number of exceptions to this where the gift cost can be deductible.

Tax Relief on Christmas Gifts

Where the gift includes a conspicuous advertisement for the business, then that would be tax deductible. For example: mousemat or diary or a branded golf umbrella.

However, if the Christmas Gifts includes drink, food, tobacco or any voucher that can be exchanged for goods, then that won’t be tax deductible, inspite of the fact that the festive chocolates are embellished with the business logo.

There is a further limitation in that the gift cost cannot go beyond £50.

There is a further relaxation to the rules in cases where a company is involved in making gifts of one of their products, and the item is given away during the regular course of that business, for the public advertisement generally.

For example: someone into the business of a chocolatier could make Christmas chocolate gifts to the  general public for promotional purposes and get tax deductible for the cost of the chocolates.

Christmas Gifts to charities would also come in the category of tax deductibles.

Christmas Gifts to Employees – Benefit in Kind

Christmas gifts to employees would also be tax deductible, but it is relevant to ensure that gifts are not more than over the course of a tax year, as otherwise it may be considered as a benefit in kind and the employee may have to pay tax on it.

The general rule states that all gifts to staff are categorized as taxable benefits, however, there is an exemption for specific gifts where the cost of the gift does not exceed £50 per employee.

To get entitled for the exemption, the gift must not be in return for a salary sacrifice or in context to work performed, and although store vouchers are approved, the gift must not be cash or a voucher that can be exchanged for cash.

For close companies, which consists of the typical family-owned company, there is an upper limit of £300 per tax year for gifts to a director and their family.

There are certain rules for long service awards and you can get in touch with us if you want to know more about it.

VAT on Christmas Gifts

When it is related to VAT, you can claim the input VAT on gifts attained for business purposes, which consists of gifts for staff and customers, but not for things you purchase for yourself or your family and friends.

However, if a person is provided with the cost of gifts for a 12 month period which costs more than £50 (excluding VAT) and you have claimed the input VAT, you will have to charge output VAT on the total cost of the gifts.

This rule is applicable on all types of gifts and if you think it is likely to apply, it might be easier not to claim the input VAT in order to start with.

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