Planning your Christmas party? Consider the VAT implications!

At this time of year, someone draws the short straw of organising the office Christmas do.  Whether it is dancing the night away or a quiet lunch (and believe me that’s quite a lively debate here in Centurion) don’t overlook the VAT consequences.

Events

HMRC agree that where an employer provides entertainment for employees to reward them for work performed or to promote morale, it does so for business purposes.  Thus VAT incurred on staff Christmas parties, outings, team building events etc. can be treated as input tax.  Fully taxable organisations would recover such input tax in full.  Organisations with non-business or exempt activities would recover the appropriate proportion as determined by their business/non business and/or partial exemption method. 

If directors, partners or sole proprietors attend the same event with employees, the whole cost can be treated as input tax but not where entertainment is provided only for directors, partners or sole proprietors.

Where employees are able to bring a guest for no charge, the VAT incurred on the guests would not be input tax.  Thus the VAT on the bill from the venue would have to be apportioned between employees and guests.  However if there is a charge for guests, even if it is below cost,  HMRC will accept that all of the VAT incurred can be treated as input tax  - but output tax would have to be accounted for on the guest contributions.

Gifts

“Business gifts” are seen as supplies for VAT purposes and output tax is due on the value. 

However there is no supply and hence no VAT liability where the cost of all gifts to the same recipient is less than £50 per annum.  Thus in practice minor gifts of diaries, calendars and bottles of wine etc to employees and customers are not supplies for VAT purposes unless the business gives more than £50  of goods to the same person.  VAT incurred on the cost would be input tax for the organisation, recoverable in accordance with the usual business/non business and partial exemption methods.

Above the £50 value, output tax needs to be accounted for but attributable input tax could be reclaimed in full.

So it only remains to resolve the arguments about where you are going this year and enjoy the countdown to the festivities.  Oh and remember mince pies are zero rated (unless supplied hot or by way of catering….………)

If you would like to discuss any of the above in further detail, please speak with your usual contact at Centurion or Julie Rawlinson-Smith on 07805 134091julie.rawlinsonsmith@centurionvat.com