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Welcome to this week’s Friday Tax Tip, with our final and festive tip of the year.
Christmas can be one of the most expensive times of the year to all of those who celebrate.
So, we’ve taken some essential tax tips to help you save money over the holiday period.
Maximising Charity Donations
The festive season brings a spirit of giving, and charitable donations can also offer tax benefits.
In the UK, Gift Aid allows charities to claim an extra 25p for every £1 donated, at no extra cost to the donor.
For higher rate taxpayers, there’s an additional benefit – they can claim back the difference between the higher rate of tax (40% or 45%) and the basic rate (20%) on the total value of their donation.
Businesses can also benefit by reducing their corporation tax.
However, it’s essential to keep records of all donations to claim tax relief.
This Christmas, consider giving a little more, knowing that it can also help reduce your tax bill.
Christmas Party Expenses
Christmas parties are a staple of the holiday season, but did you know they can also be tax-deductible for businesses?
The key is understanding the rules: the party must be open to all employees, and the cost per head shouldn’t exceed £150, including VAT.
This limit covers the entire event’s cost, from food and drink to transportation and accommodation.
If the cost exceeds £150, the entire amount becomes taxable, not just the excess.
Remember, this is an annual limit, so any other events throughout the year count towards this cap.
Don’t forget, if you bring your partner, they’re also given their own £150 tax-deductible allowance, allowing for £300 of tax-deductible allowance for couples!
So, enjoy the festive cheer with your team, and make the most of this tax-efficient benefit!
End-of-Year Tax Planning
Maximising your Individual Savings Account (ISA) contributions is a smart move.
You can invest up to £20,000 tax-free in the 2023/2024 tax year.
Consider pension contributions too; they can reduce your taxable income and help in long-term financial planning.
Capital gains tax should also be on your radar. If you have assets that have appreciated in value, consider selling some before the year-end to use your annual exempt amount of £6,000.
And don’t forget about charitable donations, which can reduce your taxable income. A little planning now can save you a lot come tax season.
Gifting Money and Tax Implications
Gifting money this Christmas? Be aware of the tax rules.
Each tax year, you can give away £3,000 worth of gifts without them being added to the value of your estate.
This is known as your ‘annual exemption’. If you haven’t used last year’s allowance, you can carry it forward, but only for one year.
Beyond this, larger gifts might be subject to Inheritance Tax if you die within seven years of making the gift.
This rule doesn’t apply to gifts to spouses or civil partners or charities.
Keeping records of what you’ve given, to whom, and when, will help manage potential tax implications in the future.
Understanding VAT during Christmas
VAT (Value Added Tax) is a key consideration during the Christmas shopping season, both for consumers and businesses.
The standard rate is 20%, but some items are charged at a reduced rate of 5%, or even zero-rated.
If you’re buying gifts for your business, such as client presents, you can typically reclaim the VAT, provided the gift doesn’t exceed £50 per recipient per year.
Tax on Christmas Bonuses
Christmas bonuses are a great way to reward employees, but it’s important to understand the tax implications.
These bonuses are treated as earnings, so they’re subject to PAYE and National Insurance contributions.
For employers, it means additional costs in terms of employer National Insurance contributions.
There’s also a benefit in kind if the bonus is in the form of a non-cash gift, although minor gifts (under £50) are typically exempt.
Planning bonus payments effectively can ensure both the employer and employee understand their tax obligations and can enjoy the festive reward to its fullest.
Christmas Shopping and Tax-Deductible Expenses
For small business owners, Christmas shopping isn’t just about personal gifts; it’s also an opportunity to review business-related expenses.
If you’re purchasing gifts for clients or employees, remember that these can be tax-deductible.
However, there are limits – £50 per gift for clients without attracting any benefit in kind tax.
Similarly, decorations and festive marketing materials are deductible.
Home Office Expenses in the Holidays
Working from home during the holidays? You might be eligible to claim some of your home expenses as deductions.
This includes a portion of heating, electricity, Council Tax, mortgage interest or rent, internet and telephone use.
The amount you can claim depends on how much you use your home for work.
There are two methods: simplified expenses (a flat rate based on the hours you work from home) or calculating the actual costs.
Remember, these expenses must be solely for business purposes. Keeping detailed records and receipts is essential for accurate claims.
So, there we have it. With the year wrapped up, I’d just like to say a big thank you, from me and all the team at taxexpert.co.uk.
Join us next year for weekly tax tips, which will keep you up to date and informed.
And, finally, happy holidays and merry Christmas to all!
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
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Kind regards,
Ilyas Patel