Being financially savvy in your business at Christmas

If you’re new to running your business and/or recently come from a corporate job, the idea of celebrating Christmas as a business owner might feel a bit overwhelming.

Christmas lunches, parties and sending gifts to clients don’t seem quite as appealing when it’s coming from your own hard-earned cash. But, here’s the good news; there are certain things that are tax deductible and you might not be aware that you can actually claim for as a business owner.

Here’s the low down….

Christmas Parties

So staff entertaining is generally an allowable business expense as long as you’re not going too OTT – no private jets to a tropical island ok! What you need to watch out for is the staff getting taxed on it as a benefit in kind (they have to pay National Insurance on the cost of the benefit). You can avoid this through the annual party exemption, which allows a cost of £150 per head to be tax-free as long as the following applies:

• it’s open to all employees
• it’s annual i.e. a Christmas party or summer BBQ
• cost less than £150 per person

The £150 limit is an annual limit, so if you had a summer BBQ that cost £75, then your Christmas party could only cost £75 before it becomes taxable.

If you are a sole trader with no employees, unfortunately, you don’t class as staff, so you aren’t able to claim Christmas party costs. If you are a sole director of a limited company you do count as staff so could hold a Christmas party – plus you’d be able to take a guest as long! For more information on this see the HMRC guidance here.

Client Gifts

So you may have some wonderful clients and they’ve really made your year – what a fab way to say thank you by sending them a Christmas gift. I know a lot of businesses do this now.

But beware – client entertaining is generally not tax deductible. This includes Christmas gifts.

Businesses can give gifts to clients if they are advertising the company. For example, a branded notebook or a Christmas card with the company name and logo on it somewhere. Keep in mind these gifts need to be less than £50 and can’t be food, drink, tobacco or gift vouchers.

I’m not saying don’t do Christmas gifts because I understand the value of client loyalty and saying thank you for that. But be savvy – keep in mind what is and isn’t tax deductible and don’t go overboard.

Staff Gifts

Staff gifts like staff entertaining are allowable to a certain point.

To stop the gift becoming taxable to the staff member it must be:

• less than £50
• not cash or a cash voucher
• not a reward for work performance
• not in the employees contract

Again unfortunately if you are a sole trader you can’t gift to yourself from the business but if you are a director you can. The only caveat with a director is the gifting is capped at £300 a year. So you can make 6 different gifts to yourself from the business. Think make-up, clothes, alcohol, face masks etc. Just make sure you keep the receipts!

For more information on this see the HMRC guidance here.