VAT at Christmas – Trees, Dinner, Treats, Hampers & more

Christmas can be an expensive time of year, but are you paying VAT on your Christmas purchases, or are they VAT free? Our VAT team has compiled a list of seasonal expenses, and whether you are paying 20% VAT on your purchases this Christmas.

VAT on Christmas Trees

The sale of trees which produce edible fruit are zero rated, but Christmas trees are not considered fruit bearing and are subject to VAT at 20%. Fruit-producing trees would also be subject to VAT if they were held out for sale as Christmas trees.

VAT at 20% is payable on artificial Christmas trees and on all your decorations.

VAT on Christmas dinner

Cooking your own Christmas dinner is the most cost-effective option available.

Foodstuffs such as meat, vegetables, gravy, pigs in blankets and cranberry sauce are all zero-rated, as are Christmas pudding and brandy sauce.

However, a Christmas dinner served in a restaurant, pub, or café is a supply of catering, and you will have to pay VAT at 20%.

Businesses taking staff out for a Christmas meal can reclaim the VAT on the meal and drinks in so far as the meal is for staff. If a guest accompanies staff, only a proportion of the VAT can be reclaimed. A fair and reasonable apportionment should be made. If each staff member brings one guest, HMRC accepts that 50% of the VAT can be reclaimed.

VAT on sweet treats

Christmas is a time to indulge in your favourite chocolate treats, but VAT is charged on chocolate confectionery, chocolate biscuits including chocolate covered shortbread and chocolate covered nuts.

Are there zero-rated sweet treats?

There are zero-rated alternatives, and the following can all be purchased free of VAT:

• Jaffa cakes
• Chocolate-covered teacakes (Snowballs)
• Gingerbread men if they are not decorated (other than dots for eyes)
• Iced biscuits
• Flapjack
• Pastries including eclairs
• Christmas cake
• Christmas pudding

A business purchasing chocolates to give as gifts can reclaim the VAT if the cost of each box of chocolates is less than £50 and the chocolates are not part of a series of gifts to the same recipient in the past year.

VAT and Christmas hampers

HMRC always regard Christmas hampers as made up of a mixture of standard rated and zero-rated goods.

VAT must be charged on the standard-rated elements such as confectionery and drinks and on the hamper itself.

Any fair and reasonable method can be used to work out the proportion of VAT charged on a hamper including the cost of purchasing each item.

A hamper containing mainly foodstuffs like cheese, crackers, jam, chutney and shortbread, is highly likely to have a smaller element of VAT charged than a hamper containing wine and chocolates.

VAT and Christmas gifts

Purchasing gifts for clients/customers and staff can be expensive. However, the VAT charged on business gifts can be reclaimed from HMRC if the value of each gift is less than £50 (excluding VAT) and not part of a succession of gifts made to the same recipient in 12 months.

Gift vouchers are a popular option to reward or thank staff at Christmas. A voucher that can only be used for one product or service is a single-purpose voucher. VAT is charged, if applicable when the voucher is purchased. A book token is an example of a single-purpose voucher on which VAT is not charged, as the voucher must be used to purchase a zero-rated book. However, a voucher for a local health spa, for example, will be subject to VAT at the standard rate when the voucher is purchased as it will be used to purchase standard rated goods or services.

VAT on vouchers purchased as business gifts can be reclaimed in the same way as VAT on tangible gifts.

VAT is not charged on vouchers which can be redeemed at a number of different retailers for a mixture of goods and/or services. VAT is charged on the purchase of goods/services when the voucher is redeemed.

VAT and Christmas parties

HMRC accept that providing a Christmas party for staff is a business expense and VAT can be reclaimed in full even if the party is also attended by directors, the partners of the business or the sole proprietor.

If guests are also invited, a proportion of the VAT can be reclaimed. However, you can reclaim the VAT in full, if a charge is made for guests and VAT charged. The amount charged can be below the cost of the guest attending.

VAT can be complicated and, following a rise in the interest rate charged by HMRC if errors are made, penalties can cost a business a significant amount if it gets the VAT treatment wrong.

We would advise you to seek professional advice if in doubt.