VAT Alert: Christmas Spending

Rob Geary

Scrooge is debating what to spend his hard earned company profits on at Christmas.

He wants to ensure he gets a cracking deal and anticipates reclaiming all the VAT he incurs. However, the rules may not allow it so he asked the VAT team to comment on his plan.

He is considering making a gift of wine to his accountant, his bookkeeper and the window cleaner. He will either go with a casket of chocolate goodies from Hotel Chocolate at £65, a Norfolk Black Turkey costing £85 or a single bottle of Co-op Chateau Plonk for £5.99.

Under current VAT rules, the input tax on the total of gifts made to the same person in any 12 month period can be reclaimed, provided all gifts to that person amount to less than £50 net cost during the period.

Scrooge has not given any other gifts to these people in the year (why would he?) so goes for the single bottle option as he can claim back the VAT.

If you are looking to spend a little more than Scrooge, and give gifts exceeding the £50 limit per person, you will either have to pay output tax on the gift given away (after claiming the input tax initially) or not claim the input tax in the first place, which will mean you have no obligation to pay any output tax.

Corporation Tax/Benefit in Kind
If Scrooge’s company were to buy gifts for their customers, this may not be tax deductible, unless the gift is in the normal course of the trade to advertise to the public, or the gift includes an obvious advert for the company; a Co-op Chateau Plonk is unlikely to qualify.

Where the company buys Christmas gifts for their employees, Jacob and Bob, the expense may be tax deductible, however the employees were worried they would get a tax bill on receiving the Christmas gift. Providing the gift costs less than £50 per employee, this should fall within the trivial benefits regime so should not give rise to a benefit in kind. There are conditions to qualify for a trivial benefit, but Scrooge’s suggestion of a Christmas pudding to each of his employees would likely be fine… unfortunately a Christmas Goose may be too expensive this year.

Bah humbug! Don’t you just love HM Revenue & Customs!?

If you would like more information on gifts

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