Understanding the tax implication of seasonal gifts to clients and staff

As the holiday season approaches, a regular question usually springs up around suitable gifts for clients and staff. Understanding the tax implications of such gestures is crucial for business owners, and fortunately, the rules are refreshingly straightforward.

Gifts to Staff

When it comes to gifts for staff, it's important to remember that they are taxable for the employee, as they are assumed to be rewards.

However, certain exceptions apply. Events such as the Christmas meal or a Summer BBQ fall under Staff Entertaining. For these exceptions business owners can allow for an annual budget of £150 per staff member. For a two-person company, this translates to a £300 annual allowance. HMRC permits the £150 to be spent at once or spread across the year.

What is important to remember is that it is essential to stay within this limit, as exceeding it by even £1 renders the entire expense non-allowable.

Gifts to Customers

To qualify as an allowable tax deduction, gifts to customers must adhere to specific rules:

• The gift must not exceed £50 in cost.
• It cannot be food, alcohol, or tobacco.
• It must not be cash or convertible to cash (cash voucher).
• The gift must carry some form of advertisement promoting your business.

Similar to staff gifts, surpassing the £50 limit by £1 results in the entire cost becoming non-allowable.

Summary

Even a two director firm can have an annual or bi-annual meal out on the company and providing you stamp your logo, or something similar, on client gifts there’s nothing to prevent you from saying “thank you for your business”, at any time of year.