HMRC Tax Allowance For Company Christmas Entertaining and Parties
22nd November 2010
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Its almost time for the annual Christmas Party for offices and businesses in Bolton and there is often meticulous and dedicated planning goes into this one off annual event but did you know as business owners that the cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes? 

Neil Hooton from Neil Hooton Accountancy states that

There is a £150 per person annual tax-free and NIC-free Christmas entertaining allowance available from HMRC. That means durng the festive period - and that extends into February! you can spend up to £150 on entertaining your staff. There are one or two strings attached to this of course, namely, you must provide receipts for any expenditure i.e. you cannot draw out £150 in cash per person and spend it down the pub. Also, it must be open to all permanent employees. The expenditure does not need to be included on any P11d and also can be offset in full against your corporation tax and any input VAT generally can be claimed on your VAT return - provided it is a normal VAT return and not the Flat Rate Scheme.

But it is rather a generous allowance by HMRC and should be used to cheer up your staff this Christmas - because boy - will they need it with the gloomy predictions for 2011!!!  

 

There are a few rules and criteria that must be followed in order to comply, some of these are listed below:

  • The event must be open to all employees at a particular location.
  • 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.
  • An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the function does not exceed £150. Partners and spouses of staff attending are included in the head count when computing the cost per head attending.
  • 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.

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.

There are also rules for gifts for employees and the following has been taken directly from HMRC information

"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."

If you require more information on the above subject or general accounting advice please do not hesitate to give Neil Hooton Accountancy a call on 01204 689607

 

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Gaynor R

Member since: 10th July 2012

Hi I am Gaynor Ramsden and am passionate about all things Bolton. I hope you enjoy reading my blogs and find them to be interesting and thought provoking. I would love you to add your personal comments...

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