Usually we do not associate Christmas period with taxes and probably would not even like to think about taxes when our thoughts are all about Christmas shopping, food preparation and decorations. There are few things to be aware of as you may be able to save some tax this festive season!
There is a tax exemption in place for entertaining your employees, irregardless of how many employees you have. Things to remember in order to get the exemption are that, the social event has to be open to all employees, event has to be planned and the cost cannot exceed £150 per person (inclusive of VAT). The cost per person can include accommodation, food and drink or even taxis home, but overall it must not exceed £150 threshold. If the guests are invited, they are included in calculation of the cost per person.
One of things you can do is to decide to hold various of events throughout the year, but the ones to claim the tax exemption still cannot exceed the threshold. Therefore you could choose to have a summer party rather than a Christmas party or both if is fits below £150. All the events which exceed the threshold will have to be included as staff entertainment and treated as benefit in kind for employees.
When the staff entertainment exceeds £150, employer can write to HMRC for Paye Settlement Agreement (PSA), which allows to cover the cost of tax and National Insurance due to benefit, and the employee won’t be liable for any additional costs. However if PSA is not in place the employer has to include the staff entertainment on the P11D and the employee will be liable for extra tax and NI.
Christmas party and VAT - the rule is that there is no VAT allowable on entertainment, however on staff function VAT can be recovered.
Gifts to customers are treated as entertainment, hence they are not tax allowable. However if the gifts contain a conspicuous advertisement for the business eg. mouse mats, diary or pens, you are allow to claim tax relief. But please bear in mind that the gifts cannot be food, drink, tobacco or any voucher that can be exchanged for goods and it cannot exceed the value of £50. The gifts of goods are also allowable, but only if you follow the exceptions.
Gifts to employees are tax allowable, but these cannot be excessive. They should not exceeding the value of £50 each and cannot be received in return for salary sacrifice or to reward the employees performance. The gift cannot be cash or a cash voucher, and should be trivial and can include the seasonal gifts like bottle of wine or box of chocolate. There is no cap of how many gifts the employee can receive in a tax year if you are not a director. The gifts provided to director and other member of their family or household, then the exemption is capped at the total cost of £300 per tax year.
Gifts and VAT - if the gifts are tax allowable then you are able to reclaim VAT.
The bonus is subject to Paye and National Insurance even if this is not based on performance only just given for Christmas.
Just having the above information in mind you can save a bit of tax this Christmas and still be able to party andsend some gifts to customers and employees.
If you have any questions please do not hesitate to contact us.