As the festive season gets closer, Christmas decorations are going up, shops are becoming busier and people are starting to think about their Christmas shopping.

There is more to Christmas planning than making sure your business is ready for an increase in demand.

It is also worth considering how your festive spending could affect your tax bill and whether there are any allowances you can take advantage of.

Why do I need to plan for Christmas spending?

The festive period gives businesses a chance to recognise the hard work of their employees and thank clients for their continued support.

However, seasonal spending can soon add up, so it is important to understand the tax rules before making any purchases.

Planning can help you manage your budget, avoid unexpected tax liabilities and make sure you are not missing out on any available tax benefits.

What do employers need to know about gifts for staff?

One allowance worth knowing about is HMRC’s trivial benefits exemption. This allows employers to provide certain gifts to employees without having to pay Income Tax or National Insurance on them.

For a gift to qualify, it must cost £50 or less per employee, including VAT. It cannot be cash or a cash voucher and must not be given in recognition of an employee achieving a target or performing well at work. It also cannot be something the employee is contractually entitled to receive.

This gives employers plenty of choice when it comes to treating their staff. A festive hamper, a box of chocolates, a gift card or even a pair of Christmas pyjamas could all be suitable options, provided the rules are followed. Gift cards must not be exchangeable for cash.

It is important to keep the £50 limit in mind when choosing presents. If a gift exceeds this amount, the entire value may become taxable rather than just the portion above £50.

What about gifts for clients?

Many businesses like to send their clients a Christmas gift as a way of saying thank you for their business over the past year. While this is a thoughtful gesture, the tax rules are not quite the same as those for employee gifts.

For client gifts to qualify for tax relief, they must include an advertisement for the business, such as a company name or logo.

They must also not consist of food, drink, tobacco or vouchers and must not exceed £50 per recipient within 12 months.

Branded calendars, diaries and office accessories are examples of gifts that could meet these requirements.

Adding your company logo is a simple way to make a gift more recognisable while also meeting the advertising requirement.

If a gift does not meet HMRC’s conditions, it may not be eligible for tax relief and VAT could also be affected. Checking the rules before spending is always a sensible approach.

How can we help?

The festive season is a great time to show appreciation and strengthen relationships, but businesses should not forget to consider the financial side of their Christmas plans.

Understanding the tax rules around staff gifts, client presents and Christmas entertainment can help you make informed decisions about your spending.

With the right preparation, you can enjoy rewarding your employees and thanking your clients while making the most of the allowances available.

Get in touch with our team for support with using your tax allowances over Christmas.