As the Christmas trees and lights begin to appear, the specialist charity tax team at Scott-Moncrieff turn their attention to seasonal tax matters. The favourable tax treatment of Christmas parties and seasonal gifts are on their list this year along with a number of other Christmas crackers.

Click on the following links to unwrap our festive tax news.

Christmas Parties

Gifts

Gift Aid payments

Christmas card sales

New Year VAT Change

This bulletin was prepared by Scott-Moncrieff’s Charity Tax Team.

Please contact the following charity specialists to discuss these or any other issues:

Scott Craig, Partner,VAT
Patricia Goldie, Manager,Employment Tax
Kirsty Murray, Manager, Corporation Tax and Trading

Christmas Parties

If you do hold a Christmas party this year and make it available to all employees, you may be able to spend up to £150 on each employee tax-free. Beware however, the £150 is not an allowance and if it is breached the amount spent would attract tax and Class 1A NIC. If you pay for a Christmas party (or any other annual events) there is no tax or NIC if the total amount spent on all annual events is below £150 per head.

Remember you can recover all of the VAT you incur on a Christmas party as long as the party is only attended by staff.

Gifts

Seasonal gifts used to be a source of great frustration for tax people. Whether you were calculating the market value of a bottle of whisky or working out the second-hand value of a Christmas turkey (quite a challenge!) everything given to employees resulted in a tax charge. Since the introduction of “trivial benefits” (not pursuits) this is no longer the case. HMRC accept that seasonal gifts (including turkeys, bottle of wine or a box of chocolates) do not result in a taxable benefit. You can recover the VAT incurred on these gifts, as long as they cost less than £50.

Gift Aid payments

Trading subsidiaries with an accounting year ending 31 March 2010 should ensure they make any payments of gift aid by 31 December 2010 to receive tax relief. The trading subsidiary should have its own bank account and demonstrate that the payment has been transferred to the charity’s bank account. A book entry to the inter company account is not usually accepted by HMRC as being payment.

Christmas card sales

The sale of Christmas cards is not always part of a charity’s primary purpose activities. As such, profits will be subject to tax unless they are covered by the small trade exemption. Remember the sale of Christmas cards is liable to standard rate VAT.

New Year VAT Change

On 4 January 2011 the VAT rate will increase to 20%. If you are unable to recover the VAT you incur on expenditure you could attempt to incur the expenditure (at the 17.5% rate) before the change. With some careful negotiation you may be able to incur the lower rate of VAT and not have to pay for it until 2011.

If you are registered for VAT you will have to change your VAT accounting procedures to accommodate the rate change.To find out more about how the rate change will affect Charities click here.