The countdown to Christmas is well and truly on. Staff parties will be held, gifts exchanged and festive drinks gatherings will be hosted.
But before business owners get too carried away with the season of good cheer, they should familiarise themselves with a few rules to ensure they stay on the right side of HMRC.
Here’s some advice from the tax team here at Optimum Professional Services.
If you’re planning a staff party, remember the tax-free limit for entertainment remains at £150 per employee. This amount includes VAT, whether or not it is reclaimed. Go over this limit, and benefit in kind or PAYE issues arise.
It’s also important to note that the £150 allowance is for the whole year, not just the Christmas party, so do take into account any other spending of this kind that you’ve already incurred in the current tax year. If the limit is exceeded then the whole cost of the event could be subject to tax and NIC depending on circumstances.
Remember to include any incidental costs in this amount; for example, if you are running a free bar or providing transport.
You might be inviting spouses, clients and contacts too, but be aware that spending on non-staff attendees counts as entertainment and so is not tax deductible. And give some thought to any regulatory issues that may arise, regarding bribery and corruption policies that either you may hold or more importantly, your customers or suppliers may have. Not everybody can accept hospitality or gifts, even at Christmas.
If you’re giving presents for staff, to avoid any issues the value must be under £50, not be food, drink, or tobacco and not be given as cash or an equivalent, such as cash vouchers. For contacts and clients, the value must be below £250 and also not in cash or cash vouchers. Again, consider any issues vis-a-vis bribery and corruption.
If you receive gifts as an employee, from your employer, or a client or supplier, these must be ‘trivial’ in HMRC’s eyes otherwise they need to be declared – or returned!
Hospitality in general counts as entertainment, and is not tax deductible. Any costs must also include incidentals. One example is taxi fares; late night taxis are an allowable cost for late night working but not in relation to hospitality. However, balance against this your responsibility as an employer to keep staff safe – you may well want to provide transport, even if you can’t write it off against tax.
Finally, IR35 has a bearing on Christmas entertainment. IR35 is the government’s anti-tax avoidance legislation where HMRC is clamping down on what it calls “disguised employment”.
If you’re a contractor and are invited to join in a staff Christmas party, does this raise a question mark in HMRC’s eyes as to whether yours is a business-to-business relationship or whether you are in actual fact an employee? If the latter, HMRC may well want to ask more significant questions! Think carefully before you accept the invitation, as it might be better to politely decline!
The same can be an issue for those that are self employed but offered hospitality at Christmas, particularly if the offer is the same as that being offered by the client to their own employees.
The team at Optimum Professional Services in Swindon can provide help and advice on all areas of tax and accountancy: business taxes, personal taxes, self-employed or a contractor where IR35 is an issue to you. Do get in touch for a no obligation chat.