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This podcast selection is taken from a series of Business Hub radio shows broadcast on Star FM between February 2011 and October 2014 with advice from basic book-keeping through to crowd funding, directors loans, cashflow and a whole lot more!

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Business Trouble - your choices

Christmas Parties - What are the tax rules?

The Business Hub Show - 4 November 2012

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Mark

Most businesses I would think have a Christmas Party, or perhaps give gifts to their employees, so are you really saying that we have to consider the tax implications of that!† Really?

Garry

I am sorry to say, yes.
It falls into Entertaining, which many people will most likely appreciate there is a general rule that the costs associated with entertaining cannot be claimed against corporation tax, and nor is the VAT reclaimable.

Mark

So are you saying that any costs for a party or gifts are not allowed against tax and you cannot reclaim the VAT?

Garry

Fortunately not! There is a special tax exemption which allows employers to have one or more annual events for employees provided the cost per head in aggregate does not exceed £150. This is an exemption, not an allowance, and the employer must make sure they follow the rules very carefully for it to apply.

  • The function must be open to all employees, regardless of their status or position in the business. The calculation cost of the event must include VAT and the cost of any transport and accommodation paid for by the employer. This is then divided by the number attending, including other guests who are not employees. If this is below £150, then the exemption applies.
  • If an employer provides two events in a year then the aggregate cost of both events must not exceed the £150 exemption. If they do then the entire cost would become taxable on the employees as a benefit. However, it may be still possible to claim the exemption on one event, and the other would become chargeable.
  • As for the VAT position. The good news is that the general block on claiming VAT on entertaining does not apply to hospitality provided for staff. However, the bad news is it is only staff, and therefore the VAT incurred on cost for non-staff (partners, business associates, etc.) is not allowable.

Mark

So, as long as the cost in a year per employee is not above £150 you are OK?

Garry

Almost. The exception only covers annual events, like a Christmas Party or maybe a Summer Barbeque, but not one offs or special events to perhaps celebrate something specific.

Mark

What if the employer decides to give Gifts as well as or instead of a Party?

Garry

The rules are very different if you provide gifts. The general rule is that tax and national insurance is due on all benefits, and gifts are considered a benefit. However, there is a relaxation on gifts of a trivial nature which might include perhaps a turkey, or chocolates, or one or two bottles of wine. However, no specific value has been placed upon what is considered trivial, but you can probably guess that a gift of an expensive bottle of vintage wine or champagne would not be!

If however, you elect to give your employees cash or a cash equivalent, such as gift vouchers, then these are always taxable and should be dealt with at the time the gift was provided.

Mark

OK, but what I donít understand is how you tax or pay the tax on a gift?† You cannot deduct tax from it like you do gross pay on payroll?

Garry

There is a system called a PAYE Settlement Agreement that you can enter into with HMRC. This enables the employer to settle all of the tax and national insurance on the benefits provided so that the employees do not suffer this charge. This is often favoured by employers who like to give gifts that would otherwise be taxable as it does not take away the nice feeling of receiving the gift. However, in calculating the cost of providing the gifts you need to take this extra cost into account. You also need to set the scheme up in advance with HMRC.

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