A tax free gift in time for Christmas

Just because you're a one man company doesn't have to mean enviously eyeing those other firms that lavish their employee's with a festive bash.

The cost of a staff party or other annual functions is an allowable tax deduction and there is no taxable benefit charged to employees provided that:

* The event is open to all employees at a particular location; and
* The cost is only tax deductible for employees and their partners (this includes directors); and
* The average cost per head does not exceed £150. Partners and spouses of staff attending are included in the head count when calculating the cost per head; and
* All costs are taken into account which must include the cost of the function, VAT, transport and/or overnight accommodation if provided to enable employees to attend. The total cost of the function is then divided by the total number of attendees (including non-employees) in order to arrive at the cost per head.

It is possible for your company to provide two or more annual parties or functions provided the cost per head does not exceed £150 in aggregate.

Where the £150 exemption limit is exceeded then whichever function best utilises the £150 is exempt. For instance, say your company holds two parties in the year the average costs of which are £100 and £80. Only the £100 function will be exempt but the £80 function will be fully taxable, highlighting that the £150 is an exemption not an allowance.

Employers can also provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas without any tax implications as the gifts are considered to be trivial.

VAT

VAT input tax can be recovered on staff entertaining expenditure. Where staff partners/spouses are also invited to the event then the input tax has to be apportioned as the VAT relating to non-staff is not recoverable. If non-staff attendees, however, pay a reasonable contribution to the event then all the VAT can be reclaimed but output tax must be accounted for on the amount of the contribution.

Gifts to employees totalling more than £50 a year will incur a VAT charge by the employer.

Story by Qdos Consulting

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Image:Christmas at the Bisson's by thegloaming