Published on Wednesday, 04 July 2012 11:16
This month’s topics:
2011 Round up and How to enjoy a tax efficient Christmas
Round up for 2011 – All topics covered in our newsletters
This month represents the end of our second year at LBW and wewould like to take this opportunity to detail the various topics we have covered in our newsletters throughout that period.
All of these topics can be read in alternate newsletters from LBW:
- Business premises renovation allowances
- Business records check
- Capital Allowances – Annual Investment allowances
- Capital allowances- Buildings
- Capital allowances – Buildings consultation
- Capital Allowances – Energy efficient
- Collection of taxes
- Company cars
- Disclosure initiative
- Employee mileage rates & VAT
- End of year tax planning
- Entrepreneurs relief
- Expense deductions
- Motor vehicles
- National Insurance
- Ni Holiday
- On line filing
- PAYE & CIS
- R & D
- Rollover relief
- Short Life assets
- Tax credits
- Tax payment dates
- Tax payment methods
- Tax relief on charitable donations
- Tax save
- VAT Flat rate scheme
- Winding up
A Tax efficient Christmas
On a more festive note, Christmas is coming and thoughts turn to the annual Christmas staff party. Indeed the party may well have been booked many months ago perhaps without any thought given to the taxation consequences. We will explore those consequences with a view to ensuring that you do not incur an unexpected tax liability and with careful planning ensure that you comply with the regulations and thus avoid any unnecessary charge.
There is a £150 (average cost per person) per tax year limit under which no benefit in kind arises on the employee in respect of attendance at a staff party/function. There is no requirement for the function to take place at or around Christmas, although many do. The employer has to identify the average cost per function per person and if there is more than one function the employer has to establish to which if any of the function or functions the exemption applies.
To determine the average cost per person you include of VAT, accommodation and any transport costs and then divide the total by the total number of people attending, including non employees, for example spouses or partners. Each function must be open to all employees generally, although in larger organisations it can be restricted to employees from a department, division or site. If any staff are excluded from any particular function it would result in that function being taxable in full on the employees attending, and there is no exemption available for that function.
If there is one function and the cost per person exceeds £150, it is a taxable benefit as the limit has been exceeded. The full amount of the cost is taxable and there is no ability to deduct £150 from the benefit in kind arising.
If there is more than one function and the overall total cost exceeds £150 then the exemption is only available on the function or functions which in total amount to £150 or less. For example if there are two functions at £120 and £85. Assuming that the employer determines that the £120 function is exempt but the £85 function is taxable in full then if an employee only attended the £85 function, they would be taxed on the £85 benefit in full. If the employee attended both functions they would still only be taxed on the £85. Obviously, if the employee does not attend either function or just the one with a cost of £120, no taxable benefit would arise.
Note that the £150 annual function exemption (and the various points below) has no impact on the tax position of the employer. The exemption is a relief from an income tax benefit in kind charge for employees. The expense is allowable in the employer’s tax computation no matter what the impact on the employee. In addition the employer can recover VAT incurred in respect of attendees who are employees (but not in respect of other attendees e.g. partners of employees, customers, suppliers etc). This employer related relief has no limit but clearly common sense should prevail. Recording in the books and records of the business as the staff Christmas party (including any ancilliary costs) will make identification easy to determine and thus ensure the relief is not overlooked.
Class 1A National Insurance contributions would be payable by the employer on any benefit in kind which is charged on employees and must be included on forms P11Ds.
Most gifts from an employer to an employee are taxable in full. If the gift can be classed as immaterial, say one bottle of wine a year, it will be non-taxable on the basis of triviality but regular gifts or one high value gift would have to be declared on form P11D (except in the case of non director employees earning at the rate of less than £8,500 per annum) and these give rise to a tax liability on the employee and a Class 1A National Insurance liability on the employer. Precisely how much is trivial can be a matter of debate but clearly any alcohol acquired as part of a Christmas celebration could be regarded as part of the overall Christmas party celebration/function and therefore careful recording of the costs involved would be needed.
The entertaining of customers/potential customers/other business contacts by an employer is not a tax deductible expense for an employer. The employer cannot reclaim VAT on the costs relating to entertaining events unless the event is predominantly for staff in which case VAT can be recovered on the costs of staff attendees (but not in respect of non staff attendees e.g. partners). Entertaining is defined as including any hospitality whatsoever and therefore would include such items as tickets for concerts or football matches in an executive box. The cost incurred on entertaining is not a taxable benefit on the employee so long as the cost is incurred wholly, exclusively and necessarily in the performance of their duties.
This test is generally satisfied if the employee in question can be said to have acted as a host or guide to the employer’s guests.
Following on from the above it should be noted that if VAT is recovered on an item of entertaining on the basis that it relates to staff entertainment then the item is likely to represent a taxable benefit in the employee’s hands (unless the annual function £150 exemption applies). Where the staff act as hosts to the employer’s guests this should not give rise to a taxable benefit but VAT incurred will be irrecoverable.
As you can see this particular area can be a minefield of what is and what is not allowable for both direct and indirect taxes. Careful planning and structuring the event before it happens will ensure the most tax efficient outcome.
Reminders for tax payments & miscellaneous updates
A couple of reminders for you.
PAYE & National Insurance
Employers PAYE & NI payments (including construction industry payments) for the month of November 2011 (which include any salary pay days between 6th November 2011 and 5th December 2011) will be due for payment by 19th December 2011 or 22nd December 2011 if payment is made electronically.
Corporation tax liabilities.
Companies with a year ending 31st March 2011 will be required to make payment of corporation tax on or before 1st January 2012. Late payment will entail an interest charge. Payment can now only be made electronically (which does include payment via your own bank or the post office using the payslip issued by H M Revenue & Customs for this purpose).
H M Revenue & Customs business payment support helpline is still open for those who are unable to settle the full amount by the due date and wish to enter into an arrangement to settle the outstanding tax in instalments. If you wish to take advantage of this please contact Steve and he will discuss the process as well as any perceived changes in H M Revenue & Customs attitude to the use of this scheme with you.