Gifts that qualify as a legitimate business expense

The festive season is here once again. If you’re a limited company director, Christmas could be a good opportunity to show any employees and directors just how much they are appreciated, by treating them to something. It’s also worth remembering that, as a director of your Personal Service Company, you can also treat yourself to a tax-free Christmas gift, which is known as a trivial benefit.

What is a trivial benefit?

HMRC states that you don’t need to pay tax on a gift as long as it meets certain criteria:

● The trivial benefit costs you £50 or less

● The benefit isn’t cash or a cash voucher

● The benefits aren’t a reward for behaviour or performance

● The benefit can’t be part of their contract of employment with you

As long as the above conditions are met, you don’t need to inform HMRC as it won’t count towards your taxable income.

If you are the director of a close company, defined as a limited company with fewer than five shareholders, you cannot receive trivial benefits worth more than £300 in a tax year.

Find out more about trivial benefits here.

A Christmas party

Christmas parties are a good way to bring your employees together and to celebrate your company’s good work over the year. But, in order for your Christmas party to be tax-deductible, it must meet the following criteria:

● The event must be annual

● It must be open to all employees

It must cost less than £150 per person

If the cost of the event exceeds £150 per person, the full amount will no longer be tax-deductible and will instead be considered taxable as a benefit in kind.

A charitable donation

As it’s the season of goodwill, why not give something back? If you’ve decided that you’d like to give to charity this year through your limited company, you may be eligible for Corporation Tax relief on the amount of the donation. There’s more information about the rules surrounding charity gifts and donations here.

Looking for more inspiration? If you still haven’t found what you’re after, Nixon Williams is here to help. If you’re looking for inspiration for other tax-free Christmas gifts this year, take a look at some other ideas.