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Thinking of giving a gift for Christmas?

It’s almost that time of year again when we hang the lights and decorate the tree, and you might be considering giving a Christmas gift to your team or customers, or taking them out to lunch.  But before you do, it’s worth considering the tax implications as it may end up costing you more than you think.

Here’s our guide to the things to bear in mind when making your decision:

  1. Client entertaining is never allowable as a corporation tax deduction, and you cannot claim back the input VAT on this either, so don’t expect anything back from HMRC if you treat a client to a night out.
  2. Gifts to customers are deductible for tax purposes only if they meet all the following criteria: the total cost to one individual per year is less than £50, the gift bears an obvious advert for your business and it isn’t food, drink or tobacco (unless they’re samples of your products), and cannot be exchangeable vouchers.  If the gift fails any of those criteria then you won’t be able to claim any deductions.
  3. Bonuses to staff are treated as additional salary, and subject to income tax and national insurance in the usual way. Any payment made to staff will be deductible for corporation tax purposes as normal.
  4. Gifts to staff: HMRC has conceded a seasonal gift such as a turkey, bottle of wine or box of chocolates can be exempt as long as the value is ‘trivial’. However, they are unlikely to consider a case of wine, a bottle of fine wine or a hamper as trivial, so be wary how much you spend.
  5. Christmas parties: Read our separate blog here on the rules for hitting the town with your team.

If in doubt, check with your accountant before making a costly mistake.