Tax tips from LWA to help ensure you have a good Christmas break!

We always get asked about Business Gifts and Entertainment at this time of year so we hope that an early December blog with the key points will help you. It’s important to understand the complex rules that often relate to business expenditure you’ve made throughout the year and not just at Christmas time, so please read on for advice on what you need to do.

The office Christmas party – a ‘motivational’ business expense!

Yes that’s right, whilst entertainment for only directors or partners within a company do not benefit from input tax recovery (under staff entertaining), if these individuals attend a staff Christmas party, or organise a party for their staff, HMRC understand the value of hospitality provided for staff as team building and motivational, therefore party expenses can be claimed. Please note that non-staff members invited to Christmas parties (where they do not pay for their attendance), input tax must be blocked in full. However, if they do pay the company for a place on the guest list, you must declare the output tax on the charge made to the non-staff member, and can claim the input tax in full.

Business entertainment – to host or not to host?

Entertaining customers, contacts or suppliers including (but not limited to) a meal and/or drinks; hotel accommodation; attendance at a sporting event or to a theatre or concert, all come under strict tax rules where input tax is blocked.

Apportioned VAT could be claimed under Staff Entertainment if your employees were also invited to attend the event as a reward rather than as a host.

The gift of giving Business Gifts…

What you might consider a promotional item given to your customers or staff at Christmas time as a marketing effort, could be considered by HMRC as a Business Gift. Furthermore, if the value of an item given to an individual person exceeds £50, or, combined with other ‘gifts’ given throughout a 12 month period, the total value exceeds £50, then output tax becomes payable on the total cost.

VAT can be claimed on items that are considered as gifts including (but not limited to) the aforementioned company branded products; flowers; chocolates or alcohol.

Gift vouchers attract a whole different set of tax implications for a business, with the rules changing earlier in 2019, as they are not considered as ‘goods’.

Reward staff to offset your Corporation Tax bill

Incentives that can be provided to directors and to your employees that motivate staff whilst also benefitting from Corporation Tax relief include, (but not restricted to): cash awards for example if they’ve suggested ideas to benefit the company; a mobile phone; £150 per employee per year for parties or events.

In all cases, ensure you keep all records of expenses made for staff entertaining and business gifts – something you can easily to with platforms such as Receipt Bank (read our recent blog on this here). If you would like some support in understanding what you can and can’t allocate to Staff or Business Entertainment or Gifts, get in touch with a member of our expert team in Warrington on 01925 830 830 or in Manchester on 0161 905 1801.