Christmas and the taxman
We are often asked about which entertaining expenditure qualifies for tax relief and what better time than Christmas to provide a quick guide to what’s allowed and what’s not.
Entertaining
Client entertaining or hospitality of any kind is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.
Business Gifts
Gifts to customers are allowable for tax purposes if:
• The total cost of gifts to any one individual per annum does not exceed £50;
• The gift bears a conspicuous advert for the business and
• The gift is not food, drink, tobacco or exchangeable vouchers.
Gifts to Staff
The provision of a seasonal gift to an employee such as a turkey, an ordinary bottle of wine or a box of chocolates will normally be considered as an exempt benefit. However, a case of ordinary wine or a bottle of fine wine or a hamper may not attract same exemption. Vouchers are subject to tax and NIC on the individual.
Christmas Bonus to staff
This counts as ordinary earnings and will be subject to PAYE and NIC as if it were an additional wage/salary.
Christmas Parties
The cost of a staff party or other annual function for employees is allowable for tax purposes. However, this does not apply to sole traders and business partners of unincorporated organisations.
Provided the function meets the following criteria, there will be no chargeable taxable benefit for the employee:
• 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.
Contact advance accounting for more details
