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If
you are organising a well-deserved works party this Christmas we have
sketched out below the current reliefs available:
The
cost of a staff party or other annual entertainment is allowed as a
deduction for tax purposes. Also as long as the criteria below are
followed, there will be no taxable benefit charged to employees:
1.
The event must be open to all
employees at a particular location.
2.
The cost is only tax deductible for
employees and their partners (which would include directors in the case of
a company) but not sole traders and business partners in the case of
unincorporated organisations.
3.
An annual Christmas party or other
annual events offered to staff generally is not taxable on those attending
provided that the average cost per head of the functions does not exceed
£150 p.a. Partners and spouses of staff attending are included in the head
count when computing the cost per head attending.
4.
All costs must be taken into account,
including the costs of transport to and from the event or accommodation
provided, and VAT. The total cost of the event is merely divided by the
number attending to find the average cost. If the limit is exceeded then individual
members of staff will be taxable on their average cost, plus the cost for
any guests they were permitted to bring. No deduction will be allowed for
the £150 exemption.
5.
VAT input tax can be recovered on
staff entertaining expenditure. If staff partners/spouses are also invited
to the event the input tax has to be apportioned, as the VAT applicable to
non-staff is not recoverable. However, if non-staff attendees pay a
reasonable contribution to the event, all the VAT can be reclaimed and of course
output tax should be accounted for on the amount of the contribution.
A
final note on gifts for employees.
Trivial seasonal gifts for employees!
Employers
may find the following Revenue concession useful - we have copied the note
directly from the HMRC handbook:
"An
employer may provide employees with a seasonal gift, such as a turkey, an
ordinary bottle of wine or a box of chocolates at Christmas. All of these
gifts are considered to be trivial and as such are not taxable. For an
employer with a large number of employees the total cost of providing a
gift to each employee may be considerable, but where the gift to each
employee is a trivial benefit, this principle applies regardless of the
total cost to the employer and the number of employees concerned."
One
final caution regarding VAT and staff gifts. VAT is chargeable by the
employer when an employee receives gifts totalling more than £50 in a year.
Turkeys,
however, are zero rated for VAT purposes!
Merry
Christmas!
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