By Sanjay Parekh, Managing Director at webexpenses,
For most, Christmas is a time for making merry, however, running the gauntlet of HMRC rules and regulations and dealing with the extra festive expenses can be a scary prospect for small businesses.
Sanjay Parekh, Managing Director at webexpenses, the award-winning provider of web-based expenses management solutions, shares his tips on how to avoid getting snowed-under this Christmas.
The growth and development of a small business’ team and customer base can make Christmas time more difficult to handle. The festive season is a perfect opportunity to demonstrate your appreciation for staff and clients.
But HMRC does not gift businesses with Christmas tax breaks. So, what does an SME need to be aware of to ensure that festivities go off with a bang and no-one is landed with an unexpected tax bill in the new year?
Gifts: Many businesses send out Christmas cards to clients and prospects. This falls under ‘office expenses’ and is a tax-deductible expense. In addition, sending out small promotional gifts to clients or prospects are tax deductible provided they carry a clear advertisement for your company and they cost less than £50 each. Non-promotional gifts to clients or prospects are classed as entertaining by HMRC.
When is comes to staff, you can spend whatever you want but this is not tax deductible. HMRC allows businesses to buy ‘trivial’ gifts for employees, which are not cash or vouchers without any tax implications, examples given are a turkey, or two bottles of ordinary wine. If you buy and distribute bigger gifts, you must report these and pay National Insurance. In relation to this, if you are on the receiving end, you can accept gifts up to the value of £150 without attracting benefit tax. However, if an individual accepts a ‘lavish’ gift from their employer they may need to pay tax on the cost of the present.
Hospitality: No festive season would be complete without the infamous Christmas party. The cost of a Christmas party for employees is also an allowable tax deduction, and a tax free benefit for employees. HMRC stipulates the event must be open to all employees and the total cost per head must not exceed £150. The total cost is calculated as the total cost of the party including transport, accommodation and VAT.
It is worth nothing that if more than one annual function is provided the aggregate cost per head must not exceed £150. Businesses may invite employees’ partners, but all employees must be entitled to invite their partner. Partners should be included in headcount when calculating the cost per head of attendees but are not themselves tax deductible.
Any Christmas event thrown to promote your business to clients or prospective clients is classed by HMRC as entertainment and therefore 50% tax deductible.
Planning & Budget: Before you begin thinking about gifts, parties or holiday it is imperative to take a planned approach. Can you afford to give a gift to every customer? Assess and rank your most important business relationships. And, think about how much you can afford to reward staff - a token gesture is often enough to show your appreciation. If you are planning a party don’t get carried away, be sure to factor in all the elements of sending gifts or offering hospitality, for example postage and packaging or travel and accommodation.
More importantly working out a budget is making sure you stick to it. Communicate both the budget and relevant policy and legislation to senior members of staff to make sure no one gets carried away.
It is also key that you have procedures in place to track your budget. The advent of cloud computing has seen management tools and software that were previously only accessible to large organisations available and affordable to small business. Expenses management tools can help you ensure you stick to your budget by offering a real-time overview of your business expenses.
And most importantly... Give yourself a break! Most business owners don’t work 9-5, and are used to work through evenings, weekends and holidays. Christmas is the one time of year that ‘most’ businesses take a break, so use the opportunity to relax, reward yourself and come back raring for a successful 2013!
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