As the calendar rolls into December and thoughts turn to the festive season and the Christmas holidays, in the UK the HMRC plays the role of scrooge with strict limits on the rewards that a company can give to its staff and gifts that it can offer its customers without creating an unwanted tax liability.
The most common staff reward is the Christmas Party. For incorporated companies, in general, the costs of employee entertaining are an allowable business expense. However, there are strict limits on the cost of a staff party (or any other annual event) within which these events do not become a taxable benefit to the staff.
To qualify, the event must be open to all staff, either company-wide or at a specific location, and the total cost of the event must not exceed £150.00 per head including VAT. Employees’ partners or spouses are included in calculating the cost per head but it vital to remember that the £150.00 per head covers the event from beginning to end so, if overnight accommodation or taxis home are provided, the cost of these have to be included in the total.
The bad news is that £150.00 per head is not an allowance. If the cost of the event exceeds this amount even by £1, the whole amount becomes a taxable benefit creating a tax liability for the employee and a National Insurance liability for the company.
Any Christmas Bonus paid to staff either through the payroll, in cash or in vouchers must be treated as additional earnings and would be subject to PAYE and NI.
Gifts to Employees can be made by a company without incurring a tax liability so long as HMRC deems them to be trivial. Unfortunately, HMRC has not defined ‘trivial’ but as a rule of thumb a seasonal gift such as a turkey, a decent bottle of wine or a box of chocolates would be allowable but a case of wine or a hamper would not be considered trivial.
If an Individual Director decides to make a personal gift to their staff, it is important to remember the Inheritance Tax implications. Everyone has an annual exemption of £3,000.00 for the gifts that they make and gifts of up to £250.00 to an individual are exempt from Inheritance Tax. Gifts of larger amounts would be considered a Potentially Exempt Transfer.
Similarly, if an employee receives a Gift from a Third-Party customer or supplier, so long as the gift does not exceed £250.00 in value, this would not be seen as taxable.
Client Entertaining is not an allowable business expense and neither can the VAT be recovered on any such expenditure.
Business Gifts to customers or suppliers are only deemed to be an allowable business expense if the total cost of the gifts to an individual in a year does not exceed £50.00, each gift is conspicuously branded with the company’s name or logo and the gift is not food, drink or an exchangeable voucher.
We hope that this whistle-stop summary of the various tax rules in has not dampened the festive cheer but serves as a useful guide.
If you would like more detailed guidance on business entertaining, taxable benefits, VAT or Inheritance Tax or have a specific question, please contact firstname.lastname@example.org to arrange a consultation.