Silly Season is just around the corner, and I’m sure you all have your Christmas parties or events in the diary for the coming weeks. So now is the perfect time to remind you all about the rules that HMRC impose to slightly dampen your spirits.
No tax charge arises if the employer provides an annual function for ALL employees (but not subcontractors) and the cost per head does not exceed £150 including VAT. This means your business gets tax relief on the cost and there is no Benefit-in-Kind tax or NI payable by your employees.
Directors and Secretaries are legally employees – so even if you run a “one man band” type of company, the relief is still available. (This relief is not available to sole traders or partners in partnerships).
The relief only applies to employees – not suppliers or customers.
ALL staff must be invited – but they do not all have to attend.
To calculate, the cost of the function including VAT, plus transport or overnight costs if provided, divided by the total number of people (including non-employees who attend, should be less than £150.
The calculation is based on the number who attend, not the number who are invited or expected. If the event is paid for in advance and several people fail to turn up, the amount per head could exceed the £150 limit.
VAT is reclaimable if paid, but only on the amount spent on members of staff.
It is not an allowance – if you spend over £150 (inc. VAT) per head then the FULL amount of the cost of the function would be chargeable to tax and NI.
If you have two or more functions per annum, then the combined cost of these still needs to be £150 inc VAT per person. If the total exceeds this amount, then whichever function(s) best utilise the allowance are exempt, the others are taxable on the employee.
Only Annual Events qualify.
!! A warning though that if an employer overspends on the Annual party, not only is tax relief denied for the company, but the employees may also have to pay personal tax on the cost of the party (including VAT). So it is really worth paying attention to the rules!!
2. Seasonal Gifts to Staff
If you are one of the generous employers who like to give your employees a seasonal gift, then they must not be a reward for employment and must not be cash or exchangeable for cash. A gift of up to £50 is not tax deductible. If the gift exceeds £50, then the whole value is taxable, not just the excess.
For directors of their own company, they can make gifts totalling £300 (with no individual gift exceeding £50) to themselves in any one year, but that limit is restricted to £300 for the whole household. So, as a director, you can buy yourself a small birthday or Christmas present at the expense of the company.
WARNING: only give staff gifts during the staff function if you are sure they will not bring the cost per head above the £150 limit! If you give a gift during the function they are not ignored under the triviality rule.
3. Tax Deductible Gifts
As if giving gifts to employees is not enough, some people even give gifts to customers, suppliers or contacts. The rules here are also tricky but can be summarised thus:
- Giving away free samples of your products, up to the value of £50, is 100% tax deductible;
- Gifts carrying a conspicuous advertisement for your business are tax-deductible, but only up to £50 per person – this is not an allowance, so don’t get caught out by spending £51!
WARNING: Gifts of food, drink, tobacco and vouchers, even if less than £50, are not tax-deductible.
VAT: VAT can be reclaimed on gifts, even on food, drink and tobacco, if charged, but only if the total value of the gift to each recipient is no more than £50 (£60 including VAT).
In summary: Gifts of food, drink and tobacco are not tax deductible; other gifts to the value of £50 are tax deductible – but don’t forget the advertising label; VAT is reclaimable if the gift(s) do not exceed £50.
If you are feeling extra generous you may even wish to give your staff a Christmas bonus.
A bonus must be added to their pay for the period and tax and NI deducted as appropriate.
It is better to pay a gross bonus (before deductions). Paying a net bonus means you will also have to pay the tax and NI on top of the bonus amount and this would add substantially to the cost of the bonus.
We strongly advise you to seek appropriate advice before taking action on any of the points listed above.
All information contained in this document are correct at the time of writing. Legislation and regulations may change at any time.
If you are in any doubt, please call us for clarification.
About us: Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA FCA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT (Fellow). Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK. Please see our website www.leggateassociates.co.uk or follow @LeggateAssoc on Twitter for occasional updates.
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