Merry Christmas, Mr Taxman!
There is so much confusion about what is allowable by the taxman and what isn't. It's not helped by the fact that the taxman and the VAT man are not able to agree!
Let me try to explain what is allowable for tax purposes:-
- I am assuming that you would like to give a Christmas gift to your customers or to one of your employees.
- The taxman will allow you to give a business gift worth up to £10 to any one person in any one year. The rules are:
- The gift has to be given freely
- It has to be a business gift. It cannot be food or drink. It can't be vouchers that could be exchanged for food and drink. So Marks & Spencer vouchers are out as well.
- It also has to carry an advertisement for your business
- Be careful about gifts that cost more than £10. In this case the taxman will disallow the whole amount, not just the amount over £10!
- The VAT man has similar rules but he will allow you to claim back the VAT on business gifts of up to £15. Confusing isn't it?
If you thought that was bad just look at the case of Christmas parties:
- The taxman will allow you to spend up to £150 per employee on a Christmas party. In fact it can be any 2 functions during the year. For instance you might spend some on a Christmas party and some on a summer barbecue.
- If your employees' husbands or wives go to the party as well, that is also okay for income tax purposes. But the VAT Man will count it as entertainment and will not allow you to claim the VAT. You will have to split the bill according to how many people are employees and how many are guests.
- The VAT man does not have a limit on how much you can spend and claim back VAT on at a Christmas party. But he may argue that the party includes an element of personal enjoyment - in which case he may disallow VAT on half the cost. We suggest that you claim all of the VAT relevant to your employees and then let the VAT man challenge it if he feels mean enough!
WARNING - If you go just 1p over the £150 limit the whole lot will be disallowed.
So does it really matter?
What happens if you decide to go ahead and give your customer a bottle of booze? The taxman will disallow the expenditure. So if the gift costs £10 it really will cost you £10.
However, if the gift is allowable and costs £10 you can get the VAT back which will save you £1.49. Because the gift is now allowable for tax you may save as much as 40% of the net cost. This means saving another £3.40. So the £10 gift ends up costing you just £5.11. Think how much further this allows you to stretch your budget.
If you want hundreds of great ideas for business gifts that would meet the rules, contact us. We know just the people to help you.
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