Entertaining and Gifts

Do you entertain staff and clients?…..Do you give staff and clients gifts?…..Do you understand the tax treatment?

What is client entertaining?

Taking a client to lunch or to a football match is client entertaining, which is not deductible for tax purposes. The business can still pay for this, and it will be included in the profit and loss account however the expense will be added back on the tax return before tax is calculated.

What is staff entertaining?

Christmas parties, summer socials or any other annual events are staff entertaining. The cost of entertaining staff will be fully deductible for corporation tax purposes.

Are there any limits on staff entertaining?

There is no upper limit to what a company can claim for staff entertainment.

However, from the staff’s income tax perspective there is a limit of £150 per head for benefit-in-kind purposes. If the cost per head does not exceed £150 (including VAT) each year, there is no benefit-in-kind.

It is important to note that it is not an allowance. A company can’t spend £160 per head and deduct £150 from the employees’ taxable benefit in kind. If the per-head cost exceeds £150, it all has to be declared as a benefit-in-kind.

If you have multiple annual events if they collectively exceed £150 you can decide which to claim the exemption against.

Employees can bring guests, and they will be included in the head count when checking if the £150per head has been exceeded.

There can be a problem where a company is required to pay upfront. The £150 per head limit applies to attendees, not invitees. So, if a number of staff are taken ill or don’t attend for any reason, the average cost can increase.

Staff might be a disgruntled if they attend and annual event and then have to pay tax on it. The company can apply for a PAYE settlement agreement (PSA) in which they pay the tax on behalf of employees.

Can VAT be claimed on entertaining?

No input VAT can be claimed on client entertainment.

Input VAT can be claimed on staff entertaining as long as all staff are entitled to attend. If there are non-staff guests attending, the company has to apportion the input VAT between staff and non-staff attendees and only claim the input VAT on the staff element.

Can I give clients gifts?

To be tax deductible, gifts can be given to clients if:

• the gift is used to advertise the trade by way of free samples.
• the gift is branded.

A deduction is not allowed for:

• the gift of food, drink, tobacco or a voucher exchangeable for goods
• a gift where the total cost of all gifts for the recipient exceeds £50.

Can I give gifts to employees?

Gifts to employees are taxable benefits and need to be declared on the P11D.

However, if the value of the gift is no more than £50 it will probably qualify as a trivial benefit, so the company won’t need to report it on P11Ds.

See my separate blog on Trivial Benefits.

Can I claim VAT on gifts?

Input Vat can be claimed on gifts that are given for commercial purposes.

Output Vat has to be paid on gifts that exceed £50, or a series of gifts add up to more that £50. You are deemed to have sold the item and charged VAT on it.

Gifts under £50 are outside the scope of supply for VAT purposes. 

Do P11Ds give you a headache? Get in touch if you would like to us to take it off your hands.