BUSINESS
THERE AIN’ T NO PARTY LIKE A TAX-FREE PARTY
BY STEVE JACOB, PARTNER AT WILKINS KENNEDY MAIDSTONE
‘ TIS THE SEASON FOR ENTERTAINING. CHRISTMAS IS A TIME WHEN MANY BUSINESSES THINK ABOUT ENTERTAINING CLIENTS AND STAFF, WITH PARTIES AND AWAY DAYS. THE TAXMAN IS PROBABLY THE LEAST WELCOME AT SUCH EVENTS, BUT IT IS PROBABLY WORTH KEEPING HIM IN MIND FOR THE PROS AND PITFALLS OF TAX TREATMENT AND POTENTIAL CHARGES.
Looking firstly at“ business” entertaining. If you or your staff choose to treat some of your clients to lunch in a restaurant or perhaps a sporting event, then an employee can claim reimbursement of costs incurred if they are paying from personal costs. Of course, you, the employer, can also meet these costs directly, but either way, there should be no taxable benefit where an external third party is entertained for a genuine business purpose.
You will no doubt also like to consider something for entertaining staff. Christmas parties are a popular favourite and where there is an annual party or similar annual event, which is open to all employees, then provided the cost per head does not exceed £ 150 per attendee, no liability to income tax should arise.
This £ 150 limit includes VAT and all costs associated to the event. Sometimes an employer will provide a second event in a tax year and where this is the case no liability will arise provided the aggregate cost does not exceed £ 150 per head. Where in combination the two events exceed £ 150 it is usual to exclude the larger and tax the lesser one. Bear in mind that the £ 150 is not an‘ allowance’ and the whole cost of the relevant event is taxable.
If external guests are invited, or staff bring spouses or guests to the festivities, then there should be an apportionment and costs will need to be split between all those in attendance.
For smaller companies, you might consider a scaled-down celebration. Instead, you may choose to reward an employee or group with a meal, a trip to a sporting event, or perhaps an activity such as go-karting. However, events open to just some specific employees are taxable on the basis they are derived from the employment duties. The employer may elect to bear the tax cost on behalf of the employee under an agreement with HMRC. Alternatively it may decide to include the item on a form P11D with the employee then being taxed on the element of the cost attributed to them. In my experience most employers will agree to bear the tax cost directly through a mechanism called a PAYE Settlement Agreement.
Perhaps a gift may suffice? HMRC defines this as“ a gift of goods that is made in the course of your business”, but it must be a genuine gift and not linked to performance, otherwise it will be taxable. Within this guidance, there’ s considerable scope, but provided that it costs less than £ 50, is not cash or a cash voucher, is not linked to performance and is not part of a series of gifts to the same person which come to more than £ 50 in that accounting period, then you are entitled to reclaim the VAT.
You may give more expensive items, for instance the kind given as‘ executive presents’. But, this is where it gets more complex as the VAT rules change according to the value of the gift. If you want to be sure of reclaiming VAT, then £ 50 is the magic number. But – beware! HMRC could still recognise this as a taxable benefit and either apply Income Tax or request that it is declared on a P11D form as a benefit in kind, so approach with care.
Finally, what about that staff conference or away day? Such events must be carefully considered from an employment tax perspective. It is important to establish business purpose and consider the extent to which there is a formal business structure to the event in assessing whether or not a taxable benefit arises. It is possible to exclude such events but the unwitting can fall foul when it is little more than a reward or thank you event. The agenda and component costs need therefore to be carefully assessed where such an event is being planned.
If you would like some further tax advice relating to claims for your staff or client entertaining costs, contact the tax team at Wilkins Kennedy’ s local office in Ashford, Canterbury, Maidstone, Orpington and Sandwich for more information.
Local offices:
Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997
www. wilkinskennedy. com
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