The Christmas period is a time for giving. Not just personally – many businesses get into the festive spirit too. It’s a great opportunity to use it as a chance to promote their business with gifts, and reward their loyal customers and staff with parties or other forms of thanks. While all of these are a good idea and can be a wonderful marketing tool, they can give your accountant a headache if they aren’t dealt with properly. So today, we want to give you a helping hand in doing this, by running through what you need to do.
Giving gifts to your customers is a fantastic way of promoting customer loyalty and saying a great big thank you at the same time. In accounting terms, gifts to customers and suppliers tend to come under one of two headings:
- Advertising and marketing
Gifts may take many forms, including:
- Free samples of your product
- A gift that’s not necessarily related to your sales, but carries advertising/merchandising for your company (like a free pen, mug or mouse mat)
- Seasonal styled gifts of food or drink (like your own branded wine or plum pudding)
- Non-branded gifts, like champagne or a box of chocolates
All of this is perfectly OK to give as a gift, and your accountant will likely give you the green light on them – but there are some rules around the tax on corporate gifts, as well as how much they cost, which could influence what you choose to do. For example:
- Customer gifts that have entertainment as their main purpose are not tax-deductible, and in most cases the VAT is recoverable.
- Free samples are generally considered advertising and promotion, so their costs are tax deductible and VAT can be recovered.
- If your customer gifts cost less than £50 per person you can usually recover the VAT, and can be classified as advertising if it carried your branding and is not food, drink, tobacco or exchangeable vouchers.
- If they cost more than £50 per person, VAT can’t be recovered and they will not be tax deductible.
Christmas parties are an interesting one. Nearly all businesses want to throw some kind of festive shindig for their employees to celebrate all of their hard work over the year, and to say thank you. For this kind of thing the business will usually foot the bill, and the good news is that it could come under tax-exempt spending. If you meet certain criteria.
To qualify for the exemption:
- The cost of your party has to come to less than £150 per head. This amount takes into account everyone who attends the event, including non-employees. If the cost goes to £151 per head, the exemption doesn’t apply
- The event has to be held once a year, and not be a one-off event.
- It has to be open to every employee in your company. So directors-only dinners or social events for one department (for example) don’t count.
- If your company is VAT registered, than you can also reclaim the VAT paid on the event (for employee spend only), as it comes under the category of staff welfare.
You can use this exemption for multiple events throughout the year, not just Christmas parties, as long as they don’t exceed the £150 limit. For example, if you throw a Christmas party that costs £10,000 and a summer party that costs £4,000 and 100 people attend each of them, then the cost would come to £140 per person, so both events would be exempt. But if your summer part cost £6,000 instead of £4,000, then the cost per head would be £160, and the exemption wouldn’t apply. This is one of the main reasons you need to keep records of your spend on events – just in case you need to confirm with HMRC what you spent.
At Cove Accountancy Services we’ve spent a lot of time working with businesses of all shapes and sizes to help them understand what they can do over the festive period, and how to do it in the most tax-efficient way possible. If you would like to know more, or are looking for advice about your own accounts, just get in touch with the team today.