Around this time of year there can be many business events such as Christmas parties and trips for employees as well clients. Many employers have trouble distinguishing between allowable expenses and disallowable expenses in terms of tax so I have put together this blog to help illustrate a few classic examples
Ben is an employee at the Shoreditch branch of Mango Chutney London Limited and earns a wage of £25,000 per annum.
- It’s coming up to the Christmas period so the business pays for Ben and four of his colleagues to have a Christmas Party which comes to a total cost of £400.
- The following week Ben’s boss is feeling particularly festive so he treats the office to drinks and another Christmas meal coming to a cost of £75 per head.
- The business also sends their clients Christmas hampers containing food and wine.
- Earlier in the year the business organised an inter-company Rugby tournament which due to costs of kit and renting the pitches came to a cost of £40 per head.
- Ben also attended a company trip to see Arsenal at the Emirates stadium to which the business paid for several clients to attend, the business classified these expenses as marketing expenses and tickets were £60 per head.
HMRC states that a business can allocate £150 worth of expenses to an employee so long as these expenses are wholly and exclusively for the purpose of business. This includes business parties and organised sporting events open only to employees.
1,2 & 4: The initial Christmas party came to a cost of £80 per head as it is the total cost of the event divided by the number of staff members (£400/5 = £80) hence the total cost of the Christmas party, second meal and the Rugby tournament is £195. This amount is a fully tax deductible expense for the company. However there is a staff entertainment tax free benefit limit of £150 which may be off-set in the most beneficial way. In this instance it would be to include the £80 Christmas party benefit and the £40 Rugby tournament benefit as tax free and the £75 meal as taxable.
3: The Christmas hamper is the first of two client related expenses along with the trip to the Emirates. Gifts of alcohol or food are not allowable therefore the Christmas hamper would not result in a corporate tax deduction.
Note: there are not many allowable gifts to give to clients, common examples of gifts that are include stationery, mouse mats and diaries that bear the companies name and come to a cost of less than £50. Companies often give gifts on the event of a sale, for example flowers given to a customer upon purchase of a car are not actually a gift as they are included in the purchase price of the car!
5: The trip to see Arsenal is not open exclusively to employees so it is a taxable benefit for Ben but as this would form part of Ben’s remuneration would be a corporate tax deductible expense. The trip was also to entertain clients. Client entertainment is not a tax allowable company expense so is added back to Mango Chutneys tax computation.