Free Seasonal Gifts & Benefits
With Christmas just around the corner here’s a quick reminder of some tax free seasonal gifts & benefits to cheer up your December and show your staff they’re appreciated.
Staff Entertainment & Christmas Parties
Entertaining is not generally tax-deductible, however, entertaining your staff is an allowable business expense. The allowable costs of a staff annual function may include food, drink, entertainment, and other incidental costs such as transport, venue hire and accommodation. VAT registered businesses can also recover the VAT. The exemption is worth up to £150 per person.
However, if the cost of parties goes over £150 per head then all the costs (not just those above £150 per head) are taxable. It’s important to note that the cost of the party is the whole cost of the event, so taxis home and any overnight accommodation must be included in the calculation. If the limit is exceeded the benefit must be reported on each employee’s P11D. This may mean that a total cost per head of say £155 could lead to an additional tax payment.
The £150 exemption can cover more than one function in a year. For example, you could have a lunch function costing £40 per head and a Christmas party costing £110 per head and both would be tax free as they’re covered by the £150 annual exemption. However, if the lunch function cost £45 per head (total of both functions £155) then the lunch function would be taxable but the Christmas party could still be tax free. However, if the trivial benefits exemption is unused (see gifts to employees below) then this could be used to cover the £45 lunch function making it tax free too.
Gifts to Employees
Christmas presents paid in cash to employees will always be taxable along with other earnings. The same treatment also extends to vouchers that can be spent in shops. The employee would have to pay tax on the full value of the voucher. However, if employees are given a seasonal present, such as a turkey, a bottle of wine or a box of chocolates, providing the cost is less than £50 a head, then it’s tax free. If the value of the gift is more than this it will be taxable.
Directors of small companies (5 or fewer directors) and members of their family or household not employed by the company can receive benefits of up to £300 tax free a year.
Gifts from Third Parties
Gifts can also be received by employees from third parties due to contact they may have had throughout the year due to their employment. If these gifts do not exceed £250 then they’ll also be tax free. If the £250 limit is exceeded the full amount is taxable.
VAT
Generally, VAT on entertaining is not recoverable; however, employee entertaining is. The definition of employees for VAT purposes does not include partners of existing staff, or former employees. Therefore, if your party includes guests, you will need to apportion the relevant costs appropriately for VAT.
Where entertainment is provided only for directors, partners, or sole proprietors, HMRC do not accept that the VAT has been incurred for business purposes. However, where directors etc. attend parties along with other staff members, then the VAT on the cost of them attending is not blocked from recovery.