This is an interesting question which raises issues of relevance to people who do not go around dressed in red all the time.
The first issue is whether Santa is taxable in the UK. In truth he is based outside the UK and one would have to consider if he operates from a branch in the UK. For the purposes of this article I am assuming his income is fully caught under UK tax law.
Next question is whether his activities amount to a trade. Trading normally involves an aspect of trying to make a profit. Apart from a few guest appearances at shopping centres most of the activity seems to be unpaid. A form of community work really. Again for the sake of the article I will assume a hard-hearted tax-man (and there still are a few around) has ruled that Santa is trading.
Once we know he is trading the next thing is to prepare accounts showing taxable income and tax-deductible expenditure. Taxable income from the trade would presumably consist of appearance fees from shopping malls, garden centres etc. It is possible that some hush-hush department within government also arranges a lump sum payment to pay towards presents for all UK-resident children.
What then can be claimed for tax relief purposes? Well of course the most obvious cost is that of the stock-in-trade (or should I say stocking trade?) The costs of making toys and any which have to be bought in will be allowable just as a lady running a sweet shop can claim the costs of sweets from the wholesaler.
Wages paid to elves will be allowable so long as they are working in the business, not merely acting as domestic staff for Santa.
Maintenance of the Grotto will be an allowable expense to go in the ‘premises’ section of his Self-Assessment form. There will have to be a proportion disallowed to reflect the part of the grotto used as a residence. If The Santa Clause 2 movie is anything to go by most of the premises are business premises with Santa’s apartment being quite small.
Beard trimming expenses will be disallowed, as there is a personal element to such expenses. Cleaning and repairs to the red costume will however be allowed as it is a specialist piece of clothing. Costs of running the sleigh and keeping the reindeer will also be allowed. If the transport is used for personal travel outside the peak period then an adjustment will be made to reflect it.
When all is taken into account I suspect Santa’s income will be less than his expenses. This will create a loss which he can set against any other income he might have – say from summer jobs or savings. Thus Santa may have a tax refund to look forward to.
The tax-man needs to know about your trade, even if you are making a loss. But losses can be set against other income to produce tax refunds.