Wheelers: ’Tis the season of goodwill - but don’t forget tax rules relating to gifts and parties

Mary Plant.

Mary Plant. - Credit: Archant

With the Christmas season of goodwill fast approaching now is perhaps a good time not to forget the tax rules relating to gifts and parties.

There is a tax exemption for employee entertaining, limited to £150 per person inclusive of VAT.

It’s important to remember that if you go over that limit by just one penny the whole cost becomes a taxable benefit and will be taxed on the employee.

The limit of £150 is per person attending and includes all costs relating to the event including taxis home, overnight accommodation and any incidental costs.

In addition, there is an exemption for trivial gifts to employees. HM Revenue & Customs provides examples of a small gift such as an arrangement of flowers as long as it is made in recognition of a particular event, for example the employee’s marriage or birth of a child and seasonal gifts such as a turkey, bottle of wine or box of chocolates.

However, the exemption does not extend to a box of wine or Christmas hamper. HM Revenue & Customs is not that generous.

For employers worried about illness at Christmas, the seasonal flu immunisations, when provided by an employer, are also considered to be trivial.

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Also bear in mind that any Christmas presents that take the form of cash or vouchers will always be taxable and should be included within the PAYE calculation.

Your employees may sometimes receive gifts from third parties through their employment. If that is the case, as long as the gifts do not exceed £250, they would be exempt from tax on the employee.

From the VAT point of view it is possible to reclaim VAT incurred on staff entertaining, even though the VAT element has to be included in the above £150 limit.

However, this only relates to the cost of the employees’ entertainment, and if the party includes other guests the VAT may need to be apportioned.

HM Revenue & Customs is also very cautious where entertainment is provided only for directors, partners or sole proprietors. In that instance, it does not accept that the input VAT has been incurred for business purposes.

For more information, contact Mary Plant on 01945 582547 or e-mail mary.plant@wheelers-accountants.co.uk Alternatively, follow Wheelers on Twitter at @WheelersAccount.