With three weeks until Christmas, now seems like a good time to provide an update on tax rules you could encounter during the season. Hopefully this will give you some ideas on how to treat your customers and staff whilst staying on the right side of the taxman.
The cost of a staff party for employees is an allowable tax deduction for businesses. 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/spouses of employees are included 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 allowable as a tax deduction if all three of the following criteria are met:
- The total cost of gifts to any one individual per annum does not exceed £50
- The gift bears a visible advert for the business
- 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
HMRC have approved 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.
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. If you would like more information on this topic, please contact 01524 62801.