11.12.19 What can employers claim at Christmas?

It is that time of year again when most of us are going out to enjoy numerous Christmas parties. But do you know exactly what you can claim and are you making the most of your expenses?

Staff Christmas Parties

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. Also, as long as the criteria below are followed, there will be no taxable benefit charged to employees:

1. The event must be open to all employees at a particular location.
2. The cost is only tax deductible for employees and their guests (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.
3. An annual Christmas party or other annual events offered to staff generally is not taxable on those attending. This is provided that the average cost per head of the functions does not exceed £150 p.a. The guests of staff attending are included in the head count when calculating the cost per head attending.
4. All costs must be taken into account, including the costs of transport to and from the event or accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring. No deduction will be allowed for the £150 exemption.
5. Employers can recover VAT input tax on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned (as the VAT applicable to non-staff is not recoverable). However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed. Of course, output tax should also be accounted for on the amount of the contribution.

If employers breach these limits, they can pick up the tax cost by using a PAYE settlement agreement.

What else can employers claim at this time of year?

‘Trivial’ Gifts for employers

Employers may find the following Revenue concession useful – we have copied the note directly from the HMRC handbook:

“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. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable. However, where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.”

One final cautionary note regarding VAT and staff gifts; VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however, are zero rated for VAT purposes!

So while you’re out enjoying yourself during the festive season, you can party away knowing exactly what you can and cannot claim.

Merry Christmas, from all of us at Grampian Accounting.

As always, if you have any questions, please feel free to contact us.