As the big day draws near, we should all pity poor Santa. Not only does he have a long night of deliveries ahead, but he also may have his tax returns to worry about.
Many of you may think that Santa would not have to pay tax. Interesting point that — there is an argument that his work is entirely charitable.
On the other hand there is no doubt that appearances in shopping centres and the like are charged — for, and that element of his activities looks like a business.
For the purposes of this article I will assume the argument over charitable status has been lost and HMRC wants to tax Santa.
The next question would be where he should file his tax returns. Of course, based in Lapland, his primary tax affairs will be dealt with there.
Having said that he is operating in the UK (indeed from a number of bases including shopping centres) and so will be taxable in the UK on his UK income.
For this reason HMRC will expect tax returns from Santa each year.
Next consideration is what year-end he uses for his UK business. Being a sensible guy, I suspect, he goes for the easiest option of a March 31 accounting date. This ties in nicely with the end of the tax year and avoids him paying tax twice on one amount of income.
Thus Santa’s activities last December 2007 will go on his tax return for 2007/08. The deadline for submitting this is 31 January 2009.
I expect that with quieter summers he has already sent in his tax form. If he has not then the deadline for doing it on paper has passed. He will now have to register and file online. Presumably some of his elves will be internet savvy and can help him with this process.
Santa’s next concern will be what income to declare and what expenses he can claim. Obviously all his UK-sourced income needs to be declared.
That will include all his money from parents at shopping centres and those Santa’s grottos (of varying quality) around the country.
If, as I suspect, he sub-contracts some of this work to Santa’s Helpers, then his payments to them will normally be allowed as a tax expense.
Only the most hard-hearted tax inspector would start to argue about whether Santa should deduct PAYE tax and National Insurance from his payments to Santa’s Helpers.
Lots of Santa’s expenses will be properly allowable against his income. And if the cost of producing all the present he delivers or hands over in the UK is higher than his income then he will make a tax loss.
A tax loss can be carried over to the next year or set against his other UK income for the year. I am not aware of what income this might be since HMRC guards his tax affairs as confidentially as they do yours or mine.
However, Santa may have other UK income. For example, he may wisely have taken some of his savings from those nearby Icelandic banks and put them into UK banks.
He may even have some employment income in the UK during the quieter months. Our family remembers seeing him on a fishing boat in Cape Cod a few summers ago, so maybe he works in the fishing industry around the world.
If instead of a tax loss Santa has made a profit then he may well have UK tax to pay on January 31, 2009. This will be the last of the payments for the 2007/08 tax year, plus the first Payment on Account for 2008/09.
If Santa anticipates problems paying his tax then he can phone HMRC’s Payment Support Line on 0845 302 1435.
Sadly, if HMRC is already pursuing him for debts it’s too late to use this new sympathy line announced in November.
He will just have to contact the people already writing to him and get the violin out. Santa may hope they’re just back from the office party and are in conciliatory mood!
I reckon tax is the last thing on Santa’s mind for the next four days, but he’ll have to make sure everything is in order once January rolls around.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.hustontax.com or 028 9080 6080