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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