In the seasonal spirit…
Whilst the rest of the office may be getting out their glad rags for a well-deserved Christmas party, if you’re in charge of the chequebook, the following snippets on staff entertaining might bring you a little festive cheer.
The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes for businesses – unfortunately, this does not apply to sole traders or unincorporated business (bah, humbug!) As long as the criteria below are followed, there will be no taxable benefit charged to employees or their partners (which would include directors in the case of a company):
- The event must be open to all employees at a given location. The event must be primarily for entertaining staff as client entertaining (i.e. hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
- The annual Christmas party (or indeed other annual event offered to staff) is not taxable on those attending provided that the average cost per head of the function does not exceed £150. The £150 is not an allowance however – if the cost is £151, the whole benefit is taxable.
- All costs must be taken into account, including the costs of transport and accommodation if provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. Partners of staff attending are included in the head count when calculating the cost per head. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
- VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned. However, if non-staff attendees pay a reasonable contribution to the event, all of the VAT can be reclaimed and output tax should be accounted for on the amount of the contribution.
And if you’re a particularly lavish employer here’s the advice from HMRC on staff gifts: “An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.” This concession also applies to flu jabs paid for by the company – not the glitziest of gifts but appreciated by some employees.
When it comes to staff bonuses however, the taxman is a little less generous – this counts as ordinary earnings and will be subject to PAYE and NI as if it were additional salary.
Gifts to customers are only allowable as a tax deduction if the total cost of gifts to any one individual per annum does not exceed £50 and the gift bears a conspicuous advert for the business – although food, drink, tobacco gifts are only allowable if they are samples of a trader’s product.
And finally, as you pop on your party hat and pull your crackers …rejoice in the fact that you turkey is VAT free!