Make sure your Christmas Party is tax deductible

An employer can spend up to £150 a year per person on entertaining employees (including directors and company secretaries).

Companies that employ dozens of workers probably arranged their Christmas party months ago. But if you don’t have any staff, say, there’s just you, or you and your partner, you might be considering a less formal Christmas do, such as a meal and a stopover at a nice hotel. Will the exemption still apply in this situation?

Good news! The legislation spells out the rules to the exemption pretty clearly. There’s no restriction on the size of business. Whether your workforce numbers 1,001 or just one, the exemption applies.

It gets better: the exemption is per head rather than per employee, so you can also pay for spouses and partners to come along without worrying about a benefit-in-kind charge.

As far as Corporation Tax is concerned, it makes no difference whether or not the Christmas party is a taxable benefit-in-kind. Either way it can claim a deduction for the cost. But this doesn’t mean you should plough ahead expecting to gain a financial advantage. The key to making this tax break pay is maximising the BiK exemption.

However, there is a trap. Go a penny over the £150 (including VAT) per head budget and the full cost becomes taxable as a benefit-in-kind. The employee will pay income tax and National Insurance, and the employer will be charged Class 1A National Insurance.

There is a get out. The restaurant, hotel etc. should be booked in the company name and if there’s any danger of the £150 limit being exceeded the director or business owner should be authorised to pay the bill personally and claim back only up to £150 per head from the company – supported by receipts of course. This ensures the cost to the company stays within the exemption.

The exemption applies to all employers, but sole traders or partnerships cannot claim an income tax deduction on entertaining their proprietors.

Finally, the party has to be open to all employees. This means that for a husband and wife company it could be their Christmas dinner!

A summer break from tax

Your business could pay for this!

It’s well known that employers can use a tax break to exempt Christmas parties from a benefit-in-kind charge. But did you know the same exemption can apply to a summer outing?

Employees and their guests are not taxed on benefits where the annual costs of a party, outing or other function provided by the company does not exceed £150 per head, inclusive of accommodation, travelling and VAT. This exemption has some good advantages, but also some pitfalls which organisers and payroll staff must consider carefully.

For instance, a company might have a Christmas lunch costing £75 a head, where each employee could invite a guest, a summer ball for employees costing £100 per head and a barbeque for employees costing £30 a head. The exemption may only be used to cover a complete event, so it could not be used for the summer ball (£100), the barbeque (£30) and part of the Christmas lunch (£20). You have to decide which event comes within the statutory exemption, and which must be shown on the Form P11D.

You might expect, in the above case, that the logical answer would be to choose the summer ball and barbeque (totalling £130), making the Christmas lunch of £75 taxable. However, as most employees bring a guest at Christmas, the P11D figure would be 2 x £75 = £150. It would therefore be better for the company to claim exemption for the Christmas lunch and barbeque, totalling £105, but exempting an additional £75 for the Christmas guest. Employees and directors would then be taxed on £100 for the summer ball.

There can be difficulties where the total cost of the function divided by the number of attendees is near £150. The exemption applies to the facts on the day. If potential attendees fail to turn up and the total cost of the function divided by the number of people who actually attend exceeds £150, then the whole amount is taxable as a P11D item. If each employee had brought along a guest, the taxable amount would be £300+.

In some instances a company will provide several functions a year. The £150 maximum exemption still applies, and the company has to choose which event falls within the exemption. Where an employee attends several functions and the total costs exceed £150, then some of the costs will be a P11D item.

The whole cost of the event that exceeds the £150 threshold becomes taxable. So if you had a £1 party and £150 party, you wouldn’t want to have them in that order!

Photo by Rubber Slippers in Italy.

A birthday present from the Taxman

It’s nice to be given a present, and even better if you can claim a tax deduction on it! HM Revenue & Customs says that you can as long as you use them in your business. But as they cost you nothing, how much can you claim?

If you spend money on your business, you can expect HM Revenue & Customs to allow the cost against your tax bill. But as with all tax reliefs it comes with conditions. One of these is that the expense isn’t for a capital item, i.e. equipment lasting more than a year or two. If it is, there are special rules that still allow you to claim relief, but potentially spread over a number of years. These are called capital allowances. A claim for capital allowances is subject to a long list of rules and restrictions.

Most importantly, you can’t claim capital allowancess unless the equipment is to be used in the business.

If you own equipment in a personal capacity and decide to use it in your business, you can claim capital allowancess on the “market value” of equipment at the date you first put it to use in your business. The market value for tax purposes means the amount that you could expect to sell it for.

But what if you haven’t paid for a something because it was given to you as a present?

The Capital Allowances Act 2001 says that where a person receives a gift of some equipment which they subsequently use for business they can also claim capital allowancess. Again, the amount claimable is the market value at that date.

The problem is that as soon as you, or the person making a gift to you, walks out the shop with the equipment its value decreases.

If you receive a gift of an asset you intend to use for business, do it straightaway. The longer you hold onto it for non-business purposes, the less it will be worth and so the tax relief you can claim will also fall.

If you delay bringing the equipment into business use, you could end up waiting for tax relief a lot longer than you expect.

Have you been given equipment in the last four years that you have used in your business but not claimed tax relief for? If so, whether it’s a car or a computer, it’s not too late to make a claim under the “overpayment relief” rules.

If you are unsure about what assets you can claim tax relief on or would like help introducing them into your business to maximise your tax relief, then please contact us today.

Have a glass of wine on the Taxman

You might spend a lot of time working away for your company. These business trips can be hard work, and at the end of a long day of meetings you return to your hotel to relax over dinner and a glass or two of wine. If you want a tax deduction for the cost of this, must you stick to the house white or can you push the Taxman’s generosity further?

Under general income tax law, as a director or employee you are taxable on the full amount of “emoluments” received, which includes expenses. However, there is an exemption for expenditure necessarily incurred in the performance of your duties. This covers related subsistence costs. In practice, this includes the cost of a “reasonable level of refreshment (both alcoholic and non-alcoholic)” and refreshments such as tea and coffee or soft drinks between meals. So how far can you push this?

Tax inspectors have to stick with the phrase “on a reasonable scale” when trying to reject deductions for directors’ expenses. They can’t treat your expense claim as unreasonable simply because it’s different from the provision for other staff, even if it’s more generous.

If you have other employees then it’s worthwhile having an expenses policy. Alter your company’s expenses policy to cover alcoholic drinks taken in conjunction with a meal. It should say what you consider a reasonable level of alcoholic refreshment is with a meal when working away on business. For directors this could be a pre-dinner drink and half a bottle of wine with the meal.

You could also apply to HM Revenue & Customs for a P11D dispensation for reimbursed expenditure so it doesn’t have to be reported on form P11D.

If you work away from home and want to know what allowable expenses you can claim, then contact us today.

Sponsorship – tax deductible or not?

A business might want to sponsor a sporting or artistic event and claim tax relief on the sponsorship. However, to obtain a tax deduction the sponsorship deal must be structured correctly. You need to show how your business expects to benefit from the sponsorship. Make sure you record the business reasons for the sponsorship and keep any correspondence you receive from the event organiser.
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There are dangers in sponsoring an organisation or activity in which you or your family are involved. In such cases HM Revenue & Customs tend to argue the sponsorship was undertaken for personal and not business reasons, in which case no tax deduction is allowed. This was shown in the case of Interfish Ltd. This company sponsored their local rugby club. Unfortunatley the companies owner, Mr Colam, was heavily involved with the rugby club.

As a sponsor you may receive ‘free’ tickets to the sponsored event as part of the sponsorship deal. If your business gives these tickets to employees the ticket value is classed as employee entertaining, which is tax deductible. However, if the free tickets are given to suppliers or customers the cost becomes a disallowable entertaining expense. So it’s essential to record what happens to any free tickets.

If you want to support a charity through sponsorship and expect nothing in return, a donation under the Gift Aid scheme may be more tax efficient for both parties.

Please contact us if you’re thinking of sponsoring a charity or event so we can make sure you get the best available tax treatment.

Make sure your Christmas Party is tax deductible

A summer break from tax

A birthday present from the Taxman

Have a glass of wine on the Taxman

Sponsorship – tax deductible or not?

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