The season of good cheer is almost upon us and no doubt many of us will, quite willingly, get caught up in the festivities. I start off November vowing that I will not over indulge this Christmas, having all good intentions with eating, drinking and restrained spending but then I seem to have an out of body experience right the way through until January 1st. At which point I question not only where the time has gone but how come my bank balance has taken such a hit!!
Having said all of that, I enjoy everything about Christmas. And, I would go as far as saying that even Mr Tax Man has a smile on his face this time of year, allowing us to have a little tax deductible fun expense. Now that in itself is something to celebrate.
The rules on what type of entertaining and which gifts are tax deductible can be a bit confusing to say the least.
How much can you show your appreciation to your hard working employees?
Well, you can spend as much as you like BUT there will only be a certain amount that does not have to be reported as a benefit in kind or deemed as tax deductible.
It’s party time J
A company is able to spend up to £150 (incl VAT) per year, per employee, for social functions and parties. This means that the allowance can be split between two events, say a Summer BBQ and a Christmas party.
As long as the event(s) are open to all employees then the COMBINED annual event for exemption is £150. That’s a lot of sausage rolls and beers in my book! The £150 per head applies to all those attending the staff function, if you have “bring a guest” policy.
But please note that £150 is not an allowance, so if the event goes above £150 per head then the whole event becomes a chargeable benefit and not just the difference between the cost and £150!
Employee Cash Bonus Bonanza or a surprise prezzie??
Cash gifts WILL be liable for tax and National Insurance through the normal payroll process, the same is said about vouchers that can be spent in either one or more shops…………….…….that’s all I can say on that subject!!
So, if we can’t give employees’ cash without being subject to tax then what can one give??
Scrooge would be quite happy to pack his employees off with the promise of a job when they return after the half day holiday (if you’re lucky) but thankfully we don’t work for him. Regardless of the amount of people that confess to be bah humbugs, I believe the majority are like armadillos – hard on the outside and soft on the inside. We all like a little show of appreciation for our hard work, commitment, late hours, weekend working…….. ok, I think I’ve milked that one enough for you.
Fortunately, kind Mr Tax Man has identified that there are some items, such as seasonal gifts that can be classed as “trivial benefits” for employees and reporting as benefits is required. See, he’s not all bad!
What fall in to the “trivial benefits” category? A bottle or two of wine, a turkey, a box of chocolates are all examples of items that can be dumped in to the “trivial benefits” box. But as we all know, Mr Tax Man is never completely transparent; if the gift extends from the odd bottle to a case and the turkey becomes a Fortnum and Mason hamper (yes please) then the company will need to consider the contents and the cost of goods before determining whether the gift is trivial or not!
This is where Mr Tax Man puts his foot down with a firm hand! Existing, new or potential client entertaining is not tax deductible and the VAT cannot be reclaimed. Furthermore, if a staff member is acting as the host at a client entertainment event the whole event is still deemed as not tax deductible and the VAT cannot be recovered.
Gifts to clients
If you would like to wish your clients seasonal greetings and make sure that the gift is tax deductible then what better way to do it than incorporate some advertising. Put simply, your client gift will be tax deductible if;
- The COMBINED cost of gifts per annum per individual does not exceed £50 and
- The gift bears a conspicuous advert for the business and
- It is NOT food, drink, tobacco or vouchers
One exemption on the last point; if you are a trader in any of the above and you are sending samples of your produce then this will be tax deductible.
As a rule, input tax on entertaining is not recoverable; however, employee entertaining is. BUT, if your party includes guests, you will need to apportion the relevant costs appropriately for VAT.
Where entertainment is provided only for directors, partners or sole proprietors, HMRC do not accept that the input tax has been incurred for business purposes. However, where directors etc. attend parties along with other staff members, then the VAT on the cost of them attending is not blocked from recovery.
What are you waiting for?
There’s nothing more Christmassy than talking tax! We have lots of fun at our parties and hope that you will have fun at yours too, oh and go on……… treat your employees……… within the guidelines of course 😉