Entertaining and gifts for employers

Christmas presents and other gifts.

The following seasonal gifts as “trivial” benefits and HMRC do not seek to tax them as employment income or benefits:

  • A turkey (but not a hamper).
  • A box of chocolates.
  • A bottle of ordinary wine or two (not a case)

From 6 April 2016 there is a statutory exemption for trivial benefits with a cost not exceeding £50.

Entertaining whether staff or customers is not usually allowable for tax purposes. By concession however you are allowed £150 per person (£300 for an employee and their partner) per annum for staff events. 

If you provide your employees with gifts at an annual party, the cost of the gifts could be added to the cost of the function by HMRC. Make sure you give out the gifts separately from event, as the cost of the gifts could take you over the £150 per head limit. Treat trivial gifts as “staff welfare” in the accounts, the expense is fully tax deductible.

VAT.

Input VAT is reclaimable by the employer on the cost of trivial benefits made to staff. If input VAT is reclaimed by a one-man owner-manager or for the cost of an event open only to the directors (so other staff are excluded), HMRC will disallow a VAT recovery on the grounds that the motive behind incurring the cost was a personal one. It is difficult to try and disprove that this is not actually the case.

Gifts over £50 to staff.

These are taxable as an employee’s earnings. If you wish to avoid the employee having an additional tax/NI liability the employer can pay this using a “settlement agreement”.

Gifts to customers and suppliers.

The tax treatment depends on nature of the gift. If entertaining, then they are not tax-deductible. A gift of a product sample is generally treated as product promotion/advertising. A gift of alcoholic drink or tobacco is not usually tax-deductible. You can claim for gifts which carry advertising ie mugs, diaries, keyrings, are generally allowable as advertising. Input VAT can also be reclaimed on the cost of business gifts, but output VAT is accounted for where the gifts are not trivial

Free food and drink.

Input tax is recoverable on entertaining overseas customers and your own staff but not on entertaining customers in the UK.

Staff meetings and training.

Where you have staff training sessions during a lunch break and you provide food etc. it is difficult for HMRC to say there is social aspect.  The “wholly exclusively and necessarily” condition is therefore met and the expenses is allowable.

Prepared 11 December 2017