We hadn’t intended to send another email newsletter before Christmas but due to the pre budget report a number of clients have expressed concerns about the new VAT rates and how it affects them. You can still access our report by clicking here and if you have any further questions please contact your client manager.

Hopefully our budget newsletter answered most of your questions about the recent VAT changes. One question which has come up though is that of credit notes. Credit notes invoiced after 1st December against invoices raised before 1st December should have the old VAT rate applied to them i.e. 17.5%. This will need to be applied carefully as accounts packages such as Sage, MYOB and Quickbooks will automatically show the new rate and the level of VAT will need to overtyped.

Christmas is coming and at this time of year many clients like to provide employees and others particularly those who have referred new business with a thank you gift. 

In general, you can put the cost of gifts to referral sources and others through your accounts. Although it is unlikely that you will get a tax deduction for those costs, this is better than paying it out of your own pocket especially if you are higher rate taxpayer.  

There are exceptions to the rule however and if the following all apply, the cost is tax-deductible:

- The gift must contain a conspicuous advertisement for the person giving the gift

- The gift must not be food, drink, tobacco or a voucher exchangeable for goods of any sort

- The cost must be below £50

There are no tax implications for the recipient as long as they are not an employee.

Christmas gifts provided to staff members are however subject to different treatment.  The costs of payments for staff benefit are tax deductible in your accounts and would therefore not need to be added back.

In general, if the gift is made in the form of cash or a voucher, it is treated as a bonus and subject to normal PAYE rules.

You can instead provide your employees with a seasonal gift, such as a turkey, a bottle of wine or a box of chocolates at Christmas without any tax consequences for the recipient, as these sorts of gifts are considered to be trivial.

If the gift extends beyond the above items, for example from a bottle to a case of wine, or from a turkey to a hamper, the contents and the cost should be considered and fair judgement given to whether HM Revenue & Customs would still consider the benefit to be trivial in nature, otherwise the gift may be subject to benefit in kind rules.

"Focus on remedies not faults" Jack Nicklaus