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 claimable Christmas expenses that you won’t want to miss out on:
1. Decking the halls
If your business has its own office that’s not in your home, you can actually claim tax relief on tinsel! Christmas decorations, as well as a tree for your office, can be logged in your accounts as day-to-day running costs. This has the very handy seasonal benefit of letting you reduce the amount of profit on which you pay tax for these items.
Unfortunately, if you work from home - even from a home office - you won’t be able to claim back on any Christmas decorations. HMRC would most likely say that these decorations are for your personal enjoyment rather than for business purposes and wouldn’t allow you to claim back the cost of them.
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 and potentially save some money on your tax bill. 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 but 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. This can often hinge on whether or not you need to report the cost of the party as a taxable benefit for your employees. Check out our guide to small business staff Christmas parties to find out more.
Christmas parties for clients
If you want to give a Christmas party for anyone other than your staff, HMRC would consider this to be business entertaining. This means that while you should still record the party as a cost in your business books, when you’re calculating your profit for tax you should add these costs back on. This means that you won’t claim and tax relief for these costs and you won’t be able to to reclaim any VAT on them either - bah, humbug! If all of this sounds a bit complicated, remember that FreeAgent automatically handles the tax treatment of business entertaining costs.
4. Christmas presents
If you have staff, you might want to give them a Christmas gift or even a bonus to thank them for all of their hard work throughout the year. Here are some key tax considerations you might want 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. For example, a comedy Christmas jumper could be ‘trivial’, but a long service award would relate to employment and definitely wouldn’t be considered ‘trivial’.
If you do gift 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. If the gift has a cash value (e.g. a gift voucher), you might need to report this value either as part of your employee's earnings or on their form P11D. HMRC has issued some official guidance on this here.
If you’re paying your staff a monetary Christmas bonus, HMRC treats it the same way as regular earnings, so you should simply run it through your payroll and pay PAYE and National Insurance on it as normal.
If you’re getting your tinsel in a tangle trying to figure out which expenses you can and can’t claim over the Christmas period, we recommend seeking the help of a friendly local accountant. You can also rely on FreeAgent to help you keep your expenses in check all year round. Try FreeAgent for free with a 30-day free trial.