Emily Coltman FCA, Chief Accountant to FreeAgent – who provide award-winning cloud accounting software for freelancers, contractors and micro-businesses – gives her top tips on what Santa might need to keep an eye on when it comes to his tax this festive season.
Mileage for the sleigh
When you’re travelling on business in your own vehicle, you can usually claim tax relief on the cost of that travel, at HMRC’s approved rates.
But those rates only apply to cars and vans, motorcycles, or bicycles, and HMRC specifically excludes any other kind of vehicle, such as a horse-drawn cart or reindeer-drawn sleigh, from the rules about claiming business mileage.
So if Santa Claus wants to try and claim his mileage, he should probably use the rate for a bicycle because it is the nearest equivalent – a vehicle propelled by a human rather than by fuel – and be prepared to discuss this with a HMRC inspector.
Reindeer costs
Santa’s reindeer would be classed as working animals rather than pet animals as they pull his sleigh, so the cost of buying them would go into Santa’s accounts as assets. This would also mean that their food, drink, shelter and any vets’ fees would be tax-deductible.
If he was keeping the reindeer for other purposes – for what they produce, such as their meat and skins, or as a breeding herd – then Santa would potentially have to put the animals in his books as stock. However, in all literature about Santa, the reindeer are always described as pulling his sleigh – so he only needs to follow the rules for working animals.
Wages for the elves
Santa Claus would be lost without all those elves making the toys he delivers. And if he was working out of the UK rather than his North Pole base, he would have to make sure that he pays them the minimum wage at least, and ensure that he also files all the relevant forms with HMRC.
Santa will also need to report PAYE and file his payroll forms to HMRC in real time. Let’s hope there’s a good Internet availability at the North Pole – and yes, Santa would be able to claim the cost of that web connection when he uses it for business!
Would he register for VAT?
Santa Claus is not making sales, he’s giving gifts! So he would never have to register for VAT because he doesn’t actually earn any money.
But as he would need to buy materials to make the gifts, it might be beneficial for him to register voluntarily for VAT so that he can reclaim the VAT he pays on the materials.
If he did register, he wouldn’t then have to charge VAT on the presents he brings, so long as they cost under £50 per person in a 12-month period. Santa Claus only gives his gifts once a year, so the second condition is fulfilled – but he’d need to prepare his accounts carefully and make sure he isn’t giving gifts worth more than £50 to any one child if he wants to avoid charging VAT on them!
What about the mince pies?
Lots of families have a tradition to leave out a mince pie, biscuit or a drink for Santa and a carrot for Rudolph. Would these be a taxable benefit?
Santa would actually have to be an employee of all the families he delivers to for this to affect him, but if he were, then yes, these would be a taxable benefit and the families would have to pay National Insurance on the value of the mince pie and carrot.
But, with all this a very important query arises, which is whether Santa Claus is actually in business and trading at all!
He’s never going to make a profit, because he doesn’t take money for the gifts he delivers. After all, nobody pays him. He will always make a loss, because he has to feed and shelter the reindeer, pay the elves, buy materials to make the toys… but he will never earn anything. If he’s lucky, HMRC will look upon him as a very kind philanthropist but not a businessman, and he won’t be subject to tax rules.
Emily Coltman FCA is Chief Accountant to FreeAgent, who provide award-winning online accounting software for freelancers, contractors and micro-businesses. Try it for free at www.freeagent.com
