As thoughts turn to all things Christmassy, I thought I would write a few words on tax issues relevant to the forth coming festive season. I hope this will give you some ideas while planning treats for your customers and staff!
- The cost
of a staff party or other annual function for employees is an allowable
tax deduction for businesses. This does not apply to sole traders and
business partners of unincorporated organisations.
As long as the function meets the following criteria, there will be no chargeable taxable benefit for the employee:
- It must be open to all employees, or to all at a particular location.
- The cost per head must not exceed £150. If more than one annual function is provided the aggregate cost per head must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head of attendees.
- If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending.
- Cost is
calculated as the total cost of the party or function including any
transport or accommodation provided and VAT.
VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned.
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.
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 and
- The gift
is not food, drink, tobacco or exchangeable vouchers.
However samples of a trader’s product are allowable even if they are food, drink or tobacco.
Gifts to Staff
In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.
This concession also applies to seasonal flu jabs which are also considered trivial but your employees may not be quite so appreciative of the “gift”!
Some employers give staff vouchers at Christmas; these are subject to tax and NI on the individual.
Christmas Bonus for staff
This will count as ordinary earnings and be subject to PAYE and NI as if it were additional salary.
I hope this has given you some ideas and information on festive tax matters.