The twelve tax days of Christmas

Who says tax doesn’t have a festive side?  We’d beg to differ…

  1. Christmas Gifts – When Scrooge gave a turkey to his employee Bob Cratchet I’m sure he’d be pleased to know that the tax man views that (along with bottles of wine and boxes of chocolates) as a ‘trivial’ gift so there’s no need to declare this as a benefit in kind. However, a more substantial gift, such as a hamper or case of wine, could be a benefit. To avoid employees being taxed on those gifts, employers can enter into a PSA agreement with HMRC to allow them to pay the tax on their employees’ behalf.
  2. The Christmas Cold - Not especially festive, but if your employer is willing to pay for a seasonal flu jab, this is also not a taxable benefit. But protection from flu at any other time of the year (pandemic anyone?) remains a taxable benefit in kind.
  3. The Office Christmas Party - no December tax article would be complete without a reminder of the limit for costs of a Christmas party before it becomes a benefit in kind. The limit is £150/head and the event must be open generally to all staff. Do note that this is actually an annual limit, so if you have more than one staff event per year then you need to do some careful sums as one or more of the events may be taxable.
  4. Christmas Trees - Generally profits from growing trees in commercial woodlands are exempt from income or corporation tax and there is no relief for losses. Presumably as trees take so long to grow HMRC doesn’t want to give loss relief for decades while they wait for a taxable profit! However, growing Christmas trees is a taxable activity, treated as market gardening. The only exceptions are if you make a Christmas tree out of the top of felled tree or use a tree ‘thinned’ from a commercial planation. The usual woodlands exemption can apply here as HMRC thinks you won’t be getting a quality tree.
  5. Christmas Packaging and Hampers - some food items are sold in festive packaging during the run up to Christmas. If that’s just to enhance the seasonal sales potential, any zero-rating for VAT still applies. However, if you make up a number of items into a hamper, then you have a mixed supply and VAT must be charged on the standard rated elements.
  6. The Christmas Cake - When it comes to making the cake, dried fruit, candied peel, glace cherries, royal icing and edible cake decorations are all zero-rated - so there’s effectively no VAT on these ingredients.  But standard rates of VAT do apply to any inedible cake decorations you put on the top. 
  7. Christmas Gingerbread - Biscuits are usually zero-rated unless chocolate covered. However, when is a chocolate biscuit chocolate covered? Gingerbread men will be standard rated, unless the chocolate is no more than ‘a couple of dots for eyes’ per HMRC. The dancing gingerbread man in the Morrison’s Christmas advert appears to have chocolate eyebrows and a mouth as well, so I wonder if he crosses the line or not… When all else fails, a spicy lebkuchen is just as nice and VAT free. 
  8. Christmas Day - the 25th is one of the English ‘quarter days’ when traditionally rents and taxes were due. While this is often still the date commercial rents are due the main self assessment payment date is now 31 January - along with the Christmas credit card bill.
  9. The Christmas Story - Mary and Joseph were issued with a decree from Caesar Augustus to return to Bethlehem to be taxed. Nowadays we don’t have to travel to pay tax and we don’t get decrees, but the Chancellor has still brought us plenty more legislation this year.
  10. Christmas Donations – if you are making any donations at Christmas to charity and are a UK taxpayer don’t forget to make a Gift Aid election so that your gift is worth more to the charity. 
  11. Christmas Nibbles – While your roasted and salted nuts are standard rated you can cheat the tax man of his VAT levy by eating vegetable crisps or tortilla crisps instead of the usual potato-based snacks. 
  12. Christmas Presents – the small gift allowance for Inheritance tax exempts gifts of up to £250 to any one individual in the year. If you are giving more expensive items, but this is part of your regular annual expenditure and your lifestyle is maintained, then these gifts could qualify for Inheritance Tax exemption as gifts out of income. 

Helen Thornley, Tax Consultant

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