Ensuring your yuletide cheer is reported correctly
I know that tax is the last thing we want to be thinking about in the festive period but ensuring that we report our expenditure correctly helps to ensure that there will be no assessments raised by HMRC in the New Year – and that is the last thing we all need on a cold, rainy January day!
The Christmas Party
When the party is purely for employees, this can be viewed as staff entertainment and is wholly business related and VAT is, therefore, fully recoverable. However, complications arise when either partners of staff or business contacts are also invited. When this occurs, only the VAT that relates to the staff members can be recovered; i.e. If you have a party for 100 people, and only 50 of those are staff, then only 50% of the VAT can be recovered.
Just remember that entertainments costs must be below £150 per head – to include any other events open to all staff during the year (a summer BBQ perhaps).
Another thing to bear in mind, if any events are for Directors of the business only, then VAT isn’t recoverable.
Everyone loves a bit of tinsel to get in the Christmas spirit – and, good news, decorations are tax deductible and classed as office running costs. Get those baubles polished!
Gifts to Clients
Gifts to customers should be recorded as ‘business entertaining’ meaning that you can’t normally claim VAT on them, unless:
- They contain an advert for the trader (that’s you!), AND
- Are NOT food, drink, tobacco or a voucher exchangeable for goods, AND
- The cost of the gift is under £50 (this total needs to include any other gifts provided to this same customer in the same accounting year)
Rewarding your staff
Christmas is a great time of year to give your employees a little something extra to thank them for all their hard work through the year and send them off on their merry way into the festive break. However, there are some things that you need to consider:
Cash Bonuses – these need to be treated the same way as regular earnings and are, therefore, subject to the same tax and NI regulations.
Non-Cash Gifts – if a gift doesn’thave a cash value (Turkey or chocolates, anyone?), HMRC may accept this as a ‘trivial benefit’ and it won’t need to be recorded on any P11D’s and won’t be subject to any extra tax or NI. However, if the item doeshave a cash value (meal vouchers for example), these would need to be reported on a P11D and would also be subject to Class 1a NI.
I know that navigating HMRC rules can be a bit of a minefield, so please remember you can always ask us – its what we are here for!