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How to Account Correctly for Christmas Spending

As we come towards the end of 2021, it's undoubtedly been another difficult year for millions of UK businesses.

While the pandemic hasn't yet dispersed, many employers and managers are keen to treat their clients and reward their staff, taking this festive period to celebrate their achievements and resilience.

The media has demonstrated how vital it is to be mindful of Christmas events and celebrations. Still, for SAS Accounting clients, the focus will be on ensuring all gifts and seasonal items are accounted for correctly - in compliance with HMRC rules.

Here we've explained which Christmas products are tax-deductible and how you should manage things like festive bonuses!

Accounting for Christmas Cards

Cards are a festive tradition, although lots of organisations (including ours!) opt to make a charitable donation instead or may choose to send digital greetings to minimise paper wastage.

If you decide to send cards, these can be recorded as a tax-deductible expense.

Note that any charitable donations or contributions to a grassroots sports club are also deductible for tax purposes. You can take off any such payments before calculating your corporation tax liability.

Employee Festive Gifts

If you're a limited company, you can treat yourself and your staff to a gift, but this must be up to £50 and cannot be given as a cash bonus.

Gifts up to the cap count as a trivial benefit, so are exempt from PAYE and Employer's National Insurance.

Any gifts given to any employee are not tax-deductible, and delivery charges count towards the limit.

One option is to give promotional gifts, including anything that is considered business advertising, with the logo or branding on the item, not just shown on the outer packaging.

These items are promotional, and they are tax-deductible. You can't give food, alcohol, tobacco, vouchers or drinks as a promotional item.

Declaring Staff Gifts Over £50

You must declare gifts over £50, so if you present your staff with gift vouchers for over this, you'll need to submit a P11D to HMRC.

Likewise, higher-value gifts are considered tax perks, so you'll need to pay National Insurance - a present costing £60 would cost closer to £85 when you calculate the tax and NI.

Paying Employees a Festive Bonus

A workplace tradition was to give a small cash bonus in a Christmas card, but if you offer anything in cash, it counts as earnings.

You'll need to add the bonus to your payroll and apply the usual PAYE taxes and National Insurance deductions.

Recording Business Christmas Party Expenses

Each business has a party allowance of £150 per employee - which can be used for virtual celebrations and in-person events.

Businesses can spend that budget on entertainment, postage, food and drink, and all staff must be invited to attend for the allowance to be eligible.

VAT on these expenses is reclaimable, but only against costs for staff entertainment, rather than funds spent for the benefit of the business or directors.

Alternative Staff Christmas Bonuses

If you're not organising gifts, bonuses or parties this year, there are several other options to thank your workforce for their hard work - without tax liabilities or additional declarations!

Options include:

  • Offering additional holiday allowances.
  • Providing each employee with a day or half-day for Christmas shopping.
  • Flexible hours to help families attend festive events, such as school nativities.
  • Team-building experiences to build morale and inject some fun into the workplace.

For more information on any of the taxes and declarations discussed here, or to check whether your festive plans fall into a taxable category, please contact the SAS Accounting team at your convenience.

We are in the office until midday on 23rd December and will regularly pick up emails and telephone messages throughout the break if you require any urgent assistance!