5 tips for Northern Ireland businesses to enjoy a tax friendly Christmas

After a quiet ‘Covid Christmas’ last year, companies across Northern Ireland are now making preparations for their long overdue Christmas party.

To sprinkle a little extra festive cheer on proceedings, Lisburn-based digital accountancy specialist Exchange Accountants has come up with some ‘cracker’ ideas to help make this year’s staff party that little bit merrier for local businesses.

“Sometimes the ‘tax man’ might seem like a real-life version of infamous skinflint Ebenezer Scrooge but Christmas can be a season of goodwill if companies take advantage of some seasonal benefits on offer from HMRC,” said Gary Laverty, director at Exchange Accountants.

“Christmas can be a costly time of year for businesses with many laying on parties for their staff and buying gifts for important clients and customers.  However, there are a number of tax benefits, specific to this time of year, that many companies are unaware of but will help reduce the overall cost of Christmas to their business,” he added.

With this in mind, Exchange Accountants has put together five handy tax relief tips to help companies make Christmas as tax efficient as possible for NI companies…

The Staff Christmas Party

Christmas wouldn’t be the same without the annual staff party, but did you know that employers can spend up to £150 per head tax free on annual social functions to entertain staff. This amount should cover food, drink and, where applicable, transport, venue hire and accommodation – and also applies to guests such as the employee’s partner/family as well.  To qualify for the exemption, the event just needs to be something that the business intends to hold annually, rather than a ‘one-off’ event.  VAT can also be reclaimed on costs provided valid VAT receipts and invoices are retained.

What’s more, for Covid-conscious companies who don’t quite feel ready to party in person, this benefit is also valid for virtual Christmas parties which are held online – with costs attracting the same level of tax relief as for a physical event. For example, if, as part of the virtual party, you provide your employees with hampers containing food and drink to be enjoyed during the virtual party, then the cost of providing these would also qualify as part of the £150 exemption.

Be careful though. Whether physical or virtual, companies need to be careful that the cost does not go over £150 per head, as the FULL amount would then be taxable and not just the difference.

Tax-deductible Christmas presents for clients and customers

Gifts for clients and customers are tax deductible as long as the cost per year is less than £50 per person and your gift contains a noticeable promotion for your company. Unfortunately, food and drink gifts do not qualify for this particular benefit. VAT can be reclaimed provided the cost of the gift does not exceed the £50 limit.

Christmas gifts for staff

Gifts for employees are tax deductible if they cost less than £50 and are considered a ‘trivial benefit’ – in other words not a performance-related reward or part of their contract. Again, this is an ‘all or nothing’ exemption – so if the cost of a gift exceeds £50, then the full value will be taxable for the employee under the usual ‘benefit in kind’ rules.

Unlike gifts to clients, gifts to your employees which contain food or alcohol (e.g., a hamper or bottle of wine) DO attract tax relief.  VAT can also be reclaimed in full on the cost of gifts to employees.

While cash gifts will attract tax relief for your company, they are NOT tax-free for employees and must be taxed along with the employee’s other earnings via payroll. Similarly, cash vouchers are tax deductible for your company but NOT tax-free for the employee and subject to PAYE and National Insurance – although a gift card for a specific retail store is acceptable.

End of year employee awards

If you’ve had a successful year and would like to reward particular members of staff for their contribution during the year, there are a couple of tax-free ‘cash’ awards that you can give to staff.  ‘Encouragement awards’ up to the value of £25 can be given to employees in recognition of extra special effort or good suggestions for the business.  At a higher level, ‘Financial Benefit’ awards of up to £5,000 (subject to certain limits) can be made to staff who have played an important role or made a suggestion that has saved or earned your company a lot of money.

These staff suggestion schemes must be open to all employees and financial awards must only be made in the event of an employee going beyond the normal call of duty or making a business-improving suggestion that is not part of their daily job (e.g., participation in a ‘new ideas’ meeting).

That’s Entertainment

Entertaining clients and customers is generally not tax deductible but there are exceptions to the rule which may enable your company to claim the cost against your tax bill. One such exception is that, if by taking a particular person out, they add value or provide a benefit to your company – possibly in the form of important advice or research that will help your business – with no reward for themselves other than a free meal, then this cost is tax deductible.

“These are the most common exemptions available to NI businesses this Christmas,” said Gary Laverty, “but there are plenty of other ways in which companies can maximize tax efficiency at Christmas and throughout the year – from both a company and employee point of view.

“As always, we would advise companies to keep very accurate records of costs and event attendees (where relevant) to support their tax relief claims, in case HMRC ever requires more information on what costs have been claimed.  As long as the company can demonstrate that the event, gift or award meets the relevant criteria for tax relief, there are definitely savings to be made,” he concluded.

For more information on any of the above tax efficiency tips and on the digital accountancy services that Exchange Accountants provide,  call 028 9263 4135, visit www.exchangeaccountants.com or send an email to [email protected].

Established in 2011, Exchange Accountants provides premier accountancy services and tax advice to a wide variety of locally based SMEs and individuals.  The past 10 years has seen the company build its reputation in the field of digital accounting, having become the first accountancy practice in Northern Ireland to be recognized as a Xero Gold Partner, and more recently achieving Platinum Partner status with the market-leading cloud accountancy software provider.

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