Christmas Entertaining

At this time of the year business owners and their employees are planning their Christmas celebrations; this may, or may not, include a party or meal out together.

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. Also, as long as the criteria below are followed, there will be no taxable benefit charged to employees:

1. The event must be open to all employees at a particular location.

2. The cost is only tax deductible for employees and their guests (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.

3. An annual Christmas party or other annual events offered to staff, generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 (inc VAT) p.a. The guests of staff attending are included in the head count when computing the cost per head attending.

4. 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.

5. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff 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. If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

A final note on ‘Trivial’ gifts for employees

Employers may find the following Revenue concession useful - we have copied the note directly from the HMRC handbook:

"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."

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are zero rated for VAT purposes!

Coding out debts

From April 2012 the coding threshold was increased from £2,000 to £3,000 allowing taxpayers to settle an underpayment of less than £3,000 via their tax code. This is subject to them being in employment or in receipt of a UK-based pension. The coding adjustment applies to self assessment liabilities and tax credit overpayments.

From April 2014 outstanding Class 2 NIC contributions can also be collected using PAYE tax codes. Class 2 National Insurance Contributions (NICs) are paid by all self-employed taxpayers unless they qualify for the small earnings exemption or other exemptions which remove the necessity to pay NICs.

The increase in the coding threshold has helped more people with small debts and underpayments to benefit from this collection method. Instead of paying off debts in a lump sum, money is collected in monthly instalments over a year.

Taxpayers with underpayments in the tax year 2012-13 will pay back the amount owed to HMRC (up to £2,999) in the tax year 2014-15.

Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) is designed to increase the level of investment in the early development of high growth potential businesses. The scheme is similar to the EIS but focuses on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The SEIS applies to shares issued on or after 6 April 2012 and will continue to offer Income Tax relief until at least 2017. Capital gains reinvestment relief was originally only available for 2012-13 but has been extended to 2013-14 at half the rate (£50,000).

The scheme provides Income Tax relief worth 50% of the amount invested to qualifying individual investors on a maximum annual investment of £100,000. This kind of tax relief is making the scheme very popular but investors should consider the importance of picking a good company to invest in and undertaking thorough due diligence. There are a number of conditions which must be met in order to invest in the scheme. For example, the scheme can only be used to invest in small companies, i.e. companies with gross assets of no more than £200,000 and with less than 25 employees.

To see if you can qulaify for SEIS relief or for further infomation, please call us.