Christmas parties and gifts

‘Tis the season for spreading a little cheer with Christmas parties and gifts. Just be sure your construction company follows the rules to keep them allowable for tax, as well as staying on the right side of HMRC!

Here's a handy video summarising the rules but for more information check out the rest of the blog below.

Christmas parties

Here are the rules you need to follow to ensure your Christmas parties are always allowable for tax:

1. Don't splash the cash ... too much!

Keep the total cost of the party under £150, including VAT, per head and remember that this includes extra costs such as transport and accommodation too.

It's an exemption, not an allowance, so if you go over £150 per head then the whole amount is taxable - so don't make this mistake.

2. Be inclusive ... but not too inclusive!

The event must be open to all employees to qualify as tax allowable.

Other guests, such as clients or partners of employees, may attend but the event must be primarily for staff entertainment.

The share of the costs for employees and their partners to attend is deductible from taxable profits, but the cost for other non-staff such as clients and suppliers is not.

3. Don't take the ... mickey

Although you can split the exemption over several events, they must be annual events such as a Christmas party or summer BBQ.

It doesn't cover multiple trips to the pub just for fun!

How do I work out the cost per head for the Christmas party?

To work out the cost per head just add up the total cost of the event, including extras and VAT and divide by the total number of people attending.

What if the cost of the Christmas party exceeds the exemption?

Unfortunately, it's taxable ... on your employees!

You'll need to either:

• Report it on a P11D so that the company pays Class 1A National Insurance (NI) on the benefit and your employees pay tax on their share; or
• Report it on a PAYE settlement agreement so you pay the NI and tax on behalf of your employees.

What about claiming the VAT?

The VAT is recoverable for your employees but restricted for any clients and employee partners attending.

Gifts

Follow these rules to ensure your gifts are always allowable for tax:

Gifts for employees (including directors)

• They must cost less than £50 (including VAT) each.
• They can't be cash but non-cash vouchers are ok.
• They can't be in recognition of a job well done.
• Employees can't be contractually entitled to receive the gift.

Gifts can be made at any time during the year, not just at Christmas. There is a limit of £300 per year for directors of small companies (up to 5 shareholders).

Gifts for customers, suppliers or subcontractors

Unfortunately, these are only allowable for tax if they meet these strict criteria:

• They must cost less than £50 (including VAT) each.
• They must have a conspicuous advert for your company.
• They cannot be food, alcohol or tobacco.

Always remember that any cash 'bonuses' paid to subcontractors must be treated as income by them and must therefore go through the CIS scheme, where applicable.

What about claiming the VAT?

The VAT is recoverable on gifts to directors and employees.

You can recover the VAT on business gifts made to an individual or business provided the total cost of all the gifts to the same person does not exceed £50 in any 12-month period. 

We hope this blog helps you to have a festive period full of cheer, whilst remaining on the right side of HMRC!

If you'd like to find out more about how working with us can help your construction business to excel whilst staying on the right side of HMRC, book your free 15-minute discovery call today.