A seasonal word of warning Christmas gift-giving is a nice gesture but it comes with its own tax rules, says Fiona Donaldson
with critics warning that QE will not in itself propel the economy out of recession and any further moves would only increase the pressures on pension funds and savings. It therefore seems likely that the Bank will need to use other measures to boost the economy – for example, new lending schemes and making credit more widely available. The situation could change if, by some miracle, the eurozone is able to get its act together, financial markets rally and confidence improves. Otherwise, it is hard to know when the Bank of England will stop QE. The end of the programme still appears to be some way off and is unlikely to happen unless the eurozone crisis is resolved. How and when that will be is still anyone’s guess.
What next for the Old Lady? (pictured above): While the Bank of England’s previous attempts to boost the economy with quantitative easing have been well-received, it’s likely that further moves would not be welcomed as enthusiastically
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December is upon us and, in the run up to Christmas, it is worthwhile remembering some tax rules which are particularly relevant during the festive season. For clients and customers, most Christmas entertaining and gifts will be disallowable for tax purposes under general entertaining exclusions. However, in limited circumstances, gifts of up to £50 in value per person per year will attract tax relief. Very broadly, allowable gifts must incorporate a conspicuous advertisement for the donor, and can’t be food, drink, tobacco or a voucher. The full cost of staff social events is an allowable expense for the employer’s business, and VAT on costs can be reclaimed by VAT-registered employers. However, if events are also attended by customers or other “non-employees”, both tax relief and VAT recovery could be restricted. The most significant staff event is usually the Christmas party. To be tax-free for employees, it must be open to all staff, with a maximum spend of up to £150 per head. The £150 limit applies to all costs associated with the event, such as entertainment, food and drink, accommodation and transport (all inclusive of VAT), and the cost per head is arrived at by looking at all attendees, including spouses, partners and any other guests, and not just at employees. Beware though – exceed this and employees earning over £8,500 per year (including the value of benefits such as the Christmas party) will be taxable on the full amount – the £150 isn’t an allowance that reduces the cost of a more expensive event. So, if the cost per head is £145 – no tax liability. If £151, the full £151 is taxable (and the employer will pay employers’ NIC). If an employer pays for more than one social event during the year, it’s the one that takes the total per head over £150 that is taxable, so a careful record-keeping is important. For example, if an employer holds a Christmas party (£90 per head), a summer outing (£70 per head) and an annual staff lunch (£30 per head), the total spend will exceed £150 per head. The Christmas party and the lunch (£90 and £30) are less than the £150 limit and won’t be taxable but the summer outing at £70 per head will be. An employee taking a partner who isn’t an employee to the lunch will suffer a tax charge on £140, ie £70 x 2. If an employer can’t avoid the £150 limit, and feels it’s not in the Christmas spirit to tax their employees, they can meet this type of one-off liability on their behalf, through a PAYE Settlement Agreement (PSA). Christmas bonuses should be taxed under PAYE along with normal wages. Gift vouchers will usually also be taxable, although more generous employers may opt for a PSA as highlighted above. There are strict rules concerning gifts to employees, but employers can provide staff with chocolates, a turkey, or a bottle of wine at Christmas without causing any tax issues. Gifts of this nature are “trivial benefits”, aren’t taxable, and don’t have to be reported to the tax man each year. Unfortunately there’s no guidance on maximum value, so probably best not to give away Harrods hampers! • Fiona Donaldson is a Partner at Springfords LLP
IoD Scotland Winter 2012 | 29