Hi, everyone. It’s Nishi at N-Accounting. I hope you’re having a great day. So in today’s video, what I wanted to do was talk about some of the tax allowances and tax breaks you can get coming up to Christmas. Normally, I do a couple of videos on this every year anyway, so I thought I’d just do a refresher one. You probably already watched a few of them. So there’s three main things that you’ve got to think about when it comes to tax and Christmas. This is assuming you are a small business. And there’s there three main allowances that you can benefit from in the run-up to Christmas.
So one of the biggest things is, a lot of businesses, they have a Christmas party. So there’s actually a Christmas party allowance, which is a really great tax incentive to entertain your employees. So what the Christmas party allowance is, well, firstly, what we’ve got to do is be politically correct. Because it’s not really a Christmas party allowance. It’s an annual event allowance. And that’s really important because you might have a business that doesn’t celebrate Christmas. So yeah, there’s no assumption that people celebrate Christmas when it comes to tax law.
So what the annual event allowance lets you do is it lets you spend £150 per head every year on annual events. So what I mean by an annual event is an event, and this is a really, really important bit, it has to be open and inclusive to all of your team. So if you just get the directors together, or the senior managers together, have a bit of a jolly and then essentially don’t invite anyone else, then that wouldn’t technically not count as part of your annual event allowance.
So one thing you’ve really got to do is, if you’re planning a Christmas party or you’re planning a different type of party, then you’ve got to invite everyone on your team and you’ve got to make sure you’re doing something that’s inclusive to everyone as well. So that’s really important. So it’s £150 a head. That can include hotels, dinners, taxis, anything you want to include. And then that’s all fully tax-deductible. As well as that, you can get the VAT back on it too. So it’s a great way to give your team something and then recover some of the costs from HMRC by paying less tax on it.
Something to remember about the annual event allowance is you don’t have to spend it all in one go. So you could maybe say, “Well, we’re going to do a Christmas party, but we’re also going to do a summer barbecue.” So what you can then do is just spend £75 on each one. And as long as it’s inclusive to your whole team then, once again, it completely qualifies. So that’s really worth factoring in.
And a couple other things to think about is, firstly, be really careful with it. Even if you go one pound over the £150 limit, the whole thing’s disallowable. So you’ve got to make sure you’re definitely monitoring it. And it’s not just for your employees. It’s also available for the guests of your employees. So if you say to your team, “Okay, well, bring your partners,” then that £150, they get their own £150 allowance each a year as well. So that’s quite good.
But one thing to factor in, in that equation is you’ve got to be really careful about taking the mickey. Obviously, if you invite a member of your team and they bring their whole family and they all get £150 allowance each, then HMRC might raise an eyebrow and then potentially claim that you’ve aggressively avoided tax and essentially give you a penalty and ask you to pay the tax back. So there’s got to be some room for judgment there. You can’t just invite everyone you want to. They’ve got to be related to the business and it’s got to be reasonable. And the other thing… What was that? Yeah, I’m sure it’ll come back to me later. But yeah, mainly be reasonable about it and you can split it over multiple events. So that’s the Christmas or annual event allowance.
And then the next thing that’s quite relevant at this point of the year is if you want to give your team presents, then what you need to understand is the rules around trivial benefits. So trivial benefits are essentially a benefit that costs £50 or less that you can give to a member of your staff without having to declare it as part of their salary. So a lot of people at this time of year, they might be giving out bottles of wine or turkeys, if you can get one. But let’s say you’ve got a vegan who doesn’t drink in your business. Then you might want to get him or her or they a gift voucher which they can spend in a shop and then essentially buy the equivalent of a turkey or a bottle of wine, but something that’s suitable for them.
So the whole point of the trivial benefits rules is you can give you a team something that’s worth £50 or less or vouchers that are equivalent to that £50 or less. However, the vouchers, if you do give vouchers, they can’t be exchangeable for cash. So that’s just something to factor in. But most supermarket and high street retailers do gift cards which aren’t exchangeable for cash, although they do have a cash value. So you’re basically covered.
As a director of a company, you can actually give yourself gift cards as well, or you can buy yourself things that are worth £50 or less. But one thing you’ve got to factor in is, with employees, the number of gifts you can give them is unlimited. Although what I said earlier about not taking the mick and overdoing it, especially if HMRC come back and say, “Well, you’re giving them all these gifts instead of paying them properly.” So you’ve got to factor that in. You can always be challenged if what you do is unreasonable or perceived to be unreasonable with employees. So you can give them as many gifts as you want within reason.
However, with directors, you are actually limited to £300 worth a year. So you could maybe buy £300 worth of meat, for example, for Christmas, like a ham, a turkey, all from different locations and they all count as different things. Or you could, once again, buy gift vouchers. But just bear in mind, the gift voucher has to be £50 or less, and you can’t buy multiple gift vouchers from the same retailer. So if you were going to spend £300 on gift vouchers, you might want to go to a local independent retailer, or support local independent businesses. But then you might want to go to another independent retailer and then you might want to go to Argos or Tescos and get gift vouchers from there.
But my point being is, if you just went to one place, bought £300 of gift vouchers, even if they were all separate gift vouchers, HMRC would still lump them all together and say, “Well, actually you have a £300 benefit. It isn’t covered about by the £50 rule.” For directors and even employees, trivial benefits a great way. Because if you were just going to give the employee the money, they’d get taxed on it. You’d pay Employers’ National Insurance on it. If you are a director and you were just going to give yourself the money, your company wouldn’t get that corporation tax saving and you’d end up paying dividend tax on it, probably. So yeah, trivial benefits a great way for you to get a bit of money out of the business.
And the final thing is gifts for suppliers and customers. So gifts for suppliers and customers nearly always count as entertainment, which is disallowable for tax purposes. So one of the things you’ve got to really think about when you’re giving a gift to a supplier or a customer is what are the exclusions, and there’s not many exclusions, unfortunately. But for those types of gifts, for them to be tax-deductible, they have to be less than £50 in value, and they have to have some sort of branding or advertising for your business, and they can’t be alcohol, tobacco, or drink. And they can’t be a voucher that’s exchangeable for those either. So unlike your Christmas parties and entertaining your team, it becomes a lot harder to give a supplier or a customer a gift. So just bear in mind, if you are going to go down the gifting route for people who aren’t your team, then you probably need some sort of branded merchandise which will also act as a bit of an advert.
So one thing you might’ve noticed from some of my more recent videos is I’m trying to limit the amount of tax ones we’re doing and then focusing a bit more on business advice. The main reason for that is I’ve been doing these videos for probably about four years. So I think I’ve done everything in tax to death. Although I’ll throw in the odd tax video here and there, just to remind you guys I’m still an accountant.
But what I’d love you to do is if you’ve got any questions about this, if you’ve got any questions about growing your business, taking it to the next level, really scaling things up, even if you’re suffering in your business and you want to find a better way to deal with it, then I want you to get in touch because that’s what we really specialize in. The tax is the easy bit. Helping people build their million pound business, that’s where we really add the value. So get in touch with me and book yourself in for a meeting if there’s anything you want to go through. All right, have a great day. Thank you.