You don’t have to be Ebenezer Scrooge to appreciate that Christmas can be a very costly time of year. We can’t save you from splurging on mince pies, unfortunately, but we can offer some words of wisdom on how to be smart with your small business costs and expenses. Here are four festive expenses that you might be able to claim.
1. Decking the (office) halls
If your business has its own office that’s not in your home, you can actually claim tax relief on tinsel! Christmas decorations for your office, including a tree, can be logged in your accounts as day-to-day running costs. However, if you work from home - even from a home office - you won’t be able to claim back on any Christmas decorations.
2. Stocking fillers
Looking to cement your status on your clients’ ‘nice list’ with a festive gift? If you decide to give a present to a client, you can record it as a business cost in your accounts. You just need to meet all of the following stipulations:
- You can’t spend more than £50 per year on gifts for any one client.
- The gift can’t be food, drink, tobacco or a voucher that the client can exchange for goods or cash.
- The gift must contain a conspicuous advert for your business.
3. The office party
Christmas parties can be a great way to show how much you appreciate your employees and clients. The question of whether you can claim back the cost of a Christmas party depends on who is on your guest list.
Christmas parties for staff
In some cases, you can throw a staff party without incurring any extra tax for you or your employees. Check out our guide on small business staff Christmas parties to find out more.
Christmas parties for clients
HMRC would consider holding a Christmas party for anyone other than your staff to be business entertaining. This means that while you should still record this kind of party as a cost in your business books, you should add the costs back on when you come to calculate your profit for tax. You won’t be able to claim any tax relief for these costs or reclaim any VAT on them. If all of this sounds a bit complicated, remember that FreeAgent handles the tax treatment of business entertaining costs automatically.
4. Christmas presents
If you have staff, you might want to give them a Christmas gift or even a bonus to thank them for their hard work throughout the year. Here are some key tax considerations to bear in mind:
If the gift doesn’t have a direct cash value then HMRC might accept it as a trivial benefit. This is defined as a small gift that’s given for personal reasons, rather than reasons relating to employment.
If you give an employee a gift that meets HMRC's definition of a trivial benefit, you won’t have to report it on the employee’s form P11D and you won’t need to pay any extra tax or National Insurance. However, if the gift has a cash value (e.g. a gift voucher), you will need to report this value either as part of your employee's earnings or on their form P11D. For more information, see HMRC's official guidance.
If you pay your staff a monetary Christmas bonus, HMRC will treat it the same way as regular earnings, so you should run it through your payroll as normal and you may need to pay tax and National Insurance on it.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.