With the festive season approaching you may be planning Christmas parties and gifts, and wonder what the tax rules are regarding the entertaining of staff and what gifts you may be able to give. In this blog I will cover the various rules and information you need to know to make the right decisions for you and your business.
Christmas parties and gifts – Gifts
If you are a Limited company, then you can give yourself a gift at Christmas. You can also give gifts to your employees. The limit is £50. This counts as a trivial benefit exemption so no Tax or NI is payable.
Where the recipient is a director or office holder in a close company, tax-free trivial benefits are capped at £300 per tax year.
This does not apply to cash so it must be a gift. Non-cash vouchers up to £50 may be exempt under the trivial benefit rules. Where the voucher exceeds £50, you will need to report these on a P11D form to HMRC. So, a couple of bottles of wine and some chocolates would count as a trivial benefit. Unfortunately, gifts to employees are not a tax-deductible expense for the business so these would be added back in the tax computation.
Buying a gift that costs more than £50 (and this includes delivery charges) will count as a taxable perk for the employees that receive it. They will then have to pay tax and you as the employer will have to pay National Insurance.
The gifts must carry a clear advertisement for the business (e.g. with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco (unless they are your business) or vouchers. Non-promotional gifts and larger gifts are classed as entertaining and are not tax-deductible as an expense.
Regarding VAT on gifts, you are able to reclaim the VAT incurred. But you may, however, have to account for VAT on the value of the gifts if the total gifts received by the recipient are more than £50 in a year.
If you give a cash bonus, this will have to go through the payroll as it counts towards the employees normal earnings and so PAYE and Class 1 NIC will apply.
Christmas parties and gifts – Staff parties
Staff parties can be exempt from tax if the event meets the following:
- It is an annual party or social function
- All employees are invited
- The cost does not exceed £150 a head (inclusive of VAT). This includes the entire cost so food/drink/taxis/accommodation etc.
The figure of £150 a head has remained unchanged since 2003!!
The £150 a head limit applies to everyone attending the function so if employees/directors are allowed to bring guests the £150 exemption will apply to their costs too.
HMRC confirms that a party can take place at any time of year and be split into multiple events as long as you do not exceed the value of £150 per employee per year.
Remember this isn’t an allowance, it’s a limit and so even a penny over £150 a head will mean the whole amount is taxable.
You can reclaim the input VAT paid on an annual event, although there are exceptions, such as you cannot reclaim the input VAT on invited partners’ costs.
Sonya is the sole Director of Jolly Accountancy Services. She qualified as a chartered certified accountant in 2000 and has over 20 years of general practice experience.
Sonya prepares accounts to help in completion of self-assessment tax returns; Produces financial statements for filing at Companies House and abbreviated accounts to ensure the minimum amount of your financial information is made public. Accounts are prepared to agreed timescales and deadlines and she also identifies areas where she can assist in minimising your tax liability. She identifies areas of the business that give you the most opportunity to make improvements and uses the accounts to help you measure where you are in meeting your goals and what actions you need to take.
Sonya takes the time to explain your accounts to you so that you understand what is going on financially within your business, helping you to plan for the future.
To get in touch with Sonya click here.
