Once again the Christmas season is upon us so this year we've put together a basic guide to help you understand what you need to know about tax and VAT when it comes to Christmas parties and giving gifts to customers and staff.
Staff Christmas Parties
HMRC allows up to £150 per employee for an annual party as long as all employees are entitled to attend. Be careful though, if the party exceeds the £150 per person threshold then the full amount of the benefit will be chargeable.
The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
• If non-employees attend the party, i.e. partners or spouses, expenditure is allowable for tax. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per attendee.
• If you are a small, owner-managed business then you are still able to claim up to £150 per employee for any Christmas party or meal, even if just two or three members of staff attend.
• Where VAT is concerned, the expenditure on non-employees is viewed as entertainment which means the VAT on that proportion of the expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.
Seasonal Gifts
All gifts to staff including Christmas gifts are classed as taxable benefits, except where they deemed to be trivial gifts.
• An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.
• Monetary gifts, for example bonuses, are accounted for through the payroll system and taxed in the usual way.
• Any non-monetary, non-trivial gifts must be included on form P11D.
Christmas Gifts to Clients
Normally gifts for customers and clients are treated in the same manner as entertainment but gifts (up to £50) carrying conspicuous advertisement can be an allowable expense.
However as with Christmas parties you need to be careful as if the gift costs more than £50 including gift wrap the whole amount will be disallowed.
Common examples of allowable gifts are diaries, pens and mouse mats. The advertisement should be on the gift itself, and not just on the wrapping.
Have an enjoyable Christmas!
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