SME Christmas Survival Guide
While Christmas is seen by most people as the season to be jolly, for small businesses navigating the minefield of HMRC rules and regulations, and rewarding employees within already stretched budgets, it can be a scary prospect.
Sanjay Parekh, Managing Director at WebExpenses, the award-winning provider of web-based expenses management solutions, shares his tips on how to survive the festive season.
As a small business develops and builds up a team of staff and an established customer base Christmas becomes more difficult to deal with. You’ve built up your reputation on the strength of your relationships, with staff and clients, and Christmas is a great time to show appreciation. However, budgets are tight and HMRC is no more lenient at Christmas than the rest of the year. So what do SMEs need to know to ensure the festive season goes to plan this year and they are not left with an unnecessary tax bill in 2013?
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.
2. Sending Christmas Cards
Sending cards to clients and prospects falls under ‘office expenses’ and is a tax-deductible expense.
3. Promotional Gifts
Small promotional gifts for clients or prospects are tax deductible provided they carry a clear advertisment for your company and they cost less than £50 each.
4. Customer Gifts
Non-promotional gifts are classed as entertaining by HMRC. But bear in mind that multiple gifts worth more than £50 in total should not be made to the same person in any 12 month period or you will be unable to reclaim the VAT.
5. Staff Gifts
You can spend whatever you want on staff but it 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 buyer bigger gifts you must report these and pay National Insurance.
6. Receiving Gifts
Individuals 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.
7. Corporate Hospitality
A Christmas event thrown to promote your business to clients or prospective clients is classed by HMRC as entertainment and therefore 50% tax deductible.
8. Staff Party
The cost of a Christmas party for employees is also an allowable tax deduction, and a tax free benefits for employees. HMRC stipulates the event must be open to 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.
9. Inviting Partners
Partners may be invited, but if partners are invited, 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.
More important that keeping 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.
11. Track it!
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.
12. 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!
This business advice article SME Christmas Survival Guide was written by Sanjay Parekh, Managing Director of WebExpenses