With some normality regained and the festive season rapidly approaching, you may be thinking of hosting parties for staff and possibly clients. For loyal customers and generous suppliers gifts may be given to show gratitude after a tough year.
What is the VAT position, and are there any steps that can be taken to avoid a charge?
The starting point with business entertainment is that input tax can only be reclaimed on the cost of hospitality provided to staff. Entertainment given to non-staff members, such as customers, suppliers or the spouses of staff is blocked, and the input tax can’t be recovered.
Hospitality & VAT
There is no monetary limit on the cost of hospitality provided to employees to enable input tax to be claimed. The restriction to £150 per head including VAT (this figure also includes the cost of the spouse/partner meals) only applies for income tax. This means that, for Income Tax purposes, the whole amount will be assessed as a benefit in kind for the employee if the £150 limit is exceeded.
There is a let out for VAT on entertainment, such as Christmas parties, non-staff, suppliers, and subcontractors etc. VAT is blocked where the entertainment (party!) is provided free of charge. Making a, small, charge to non-staff attendees means that VAT can be reclaimed.
The VAT rules allow a business gift to be given away VAT free (and input tax claimed on the related cost) if it cost less than £50 excluding VAT. However, the figure is an annual limit per person. It is important to keep a record of who is receiving a gift, the value and date it was given. Gifts of tobacco, alcohol, food or any voucher exchangeable for cash or one of the excluded items are excluded.
Vouchers to Staff
Cash vouchers given to staff are taxable in full in the same way as ordinary earnings. The face value of the voucher, regardless of the cost to the employer, must be accounted for via PAYE. Non-cash vouchers can benefit from the trivial benefit rules, so employees could be given a store voucher, for example, that does not exceed the £50 limit.