Posts Tagged ‘Corporate entertainment’

Merry Christmas for the Tax Man

Wednesday, November 29th, 2017

Countdown to the Christmas party season has already begun and for some companies, particularly those who have had a good year, it’s often a time to give a bit back and say ‘thank you’ to staff, clients or customers by throwing a great party, buying gifts or putting on a special event.

And even the tax man loves Christmas, too.

Christmas Parties

When the directors of a company decide to hold a Christmas party, the cost of it comes under the ‘business entertainment rules’.  Entertainment naturally involves eating, drinking and forming or maintaining contacts.  If your Christmas party is for employees only, then VAT on the costs of the party can be recovered, subject to normal exemption rules – no matter how lavish it is.

If the directors attend the party with their staff, then VAT on the cost is still recoverable.

But if the directors are shareholders in the company, and have a separate party for themselves, then VAT would not be recoverable because it is assumed that there would be no business purpose. HMRC consider that the directors don’t need any more rewards or motivation because they are already receiving a higher salary and profit sharing perks.

Further, if guests who are not employees attend the party, then the VAT would need to be apportioned between employees and non-employees as there is no allowance for VAT for entertaining non-employees.

Christmas Presents

VAT is claimable on gifts whether they are for employees or clients.  There is no need to account for tax on the cost of the goods however, if they are given as gifts as long as the total VAT exclusive cost of business gifts to the same person in any one year, does not exceed £50.

If you’re unsure which tax category your office Christmas celebrations fall into, contact for an informal chat.  Merry Christmas!