Can you obtain tax relief on the cost of your office Christmas decorations? What is the accounting treatment?

It's day 3 of our Tax & Accounting at Christmas Advent calendar, as we analyse Christmas and tax and open a door to count down each working day until the Christmas holidays in the UK.

Accounting: your options

Expenditure on seasonal decorations can be analysed into the following revenue headings:

  • Advertising and marketing: you are making your premises attractive to customers.
  • Staff welfare: you are decorating the office and cheeing up the staff.
  • Repairs and renewals: when you replace the broken ‘fairy lights’ each year.
  • Sundry expenses: when you can't think where else they go.
  • Plant and machinery: its best practice to capitalise something with a useful life that is longer than a year. See What is plant and machinery? 

Tax: different treatments

Revenue expenditure

  • Expenditure must be wholly and exclusively incurred for the purposes of your trade.
  • If you are a sole trader, working from home, all alone and no customers ever visits your home-workspace (we feel very sorry for you if that is the case), it might be arguable that there is no business use of your decorations and they are not allowed for tax. 
  • There are special tax rules for Repairs and renewals however these are unlikely to apply to small cost items.

Capital expenditure

  • If your decorations are likely to be in use year on year, then you will want to capitalise them and claim the Annual Investment Allowance AIA on the cost. 
    • Note that if you have a mixed LLP you are restricted on claiming the AIA.
  • If you have made high levels of capital expenditure it is possible that you will exceed the AIA annual limit and you will only be able to claim a writing down allowance instead.
  • In the unlikely event that you decide to hard-wire your fairy lights into your building, they would then become Integral Features, this would mean that expenditure on these items in excess of the AIA limit will qualify for a lower rate of capital allowance.

If you are already making Trading Losses, an excess spend on decorations will enhance your loss, or your capital allowances will enhance your loss. In these circumstances it is possible that loss relief may be restricted because you are:

a) Running an Uncommercial Trade (this restriction applies to companies and individuals)

b) Have reached your Cap on Income Tax Reliefs (this applies to individuals only and can affect, both losses and capital allowance claims.).

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