VAT Deferred Period – HMRC VAT Direct Debits

1 min read

The VAT payment deferral period, which was introduced as a measure to ease financial pressure on businesses during the COVID-19 pandemic, ends on 30 June 2020.  Any liabilities that fall due on or after 1 July 2020 should be paid in full by the due date, unless there is a time to pay arrangement in place.

Businesses will need to consider setting up any cancelled direct debits in enough time for HMRC to take their next VAT payment. 

Any deferred VAT payments should be paid in full on or before 31 March 2021. Additional payments can be made with subsequent returns.

If you have any questions, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Why Consider a Bounce Bank Loan

2 min read

In an attempt to help businesses that were unable to access funds through the Coronavirus Business Interruption Loans (CBILS), the treasury recently announced the Bounce Back Loan Scheme (BBLS).

The terms of these loans have now been confirmed as follows:

  • Loans range from £2,000 up to 25% of a business’ turnover to a maximum of £50,000
  • 100% Government backed loan with no other security required
  • The loans are for a period of six years
  • There are no interest charges or repayments due in the first year
  • A low interest rate of 2.5%
  • No early repayment charges
  • No arrangement fees

To be eligible for the BBLS, in general terms, you need to be a business in the UK, have been affected by Coronavirus and not using CBILS.

Why consider taking out a Bounce Back Loan?

  • Cash flow

A Bounce Back loan would provide cheap working capital for your business. 

  • Repayment of existing borrowings

Perhaps consider whether you have any current business borrowings such as hire purchase agreements, bank loans and overdrafts or credit card debt that could be settled by using the funds raised from a Bounce Back loan.  It would be important to check that there are no early repayment charges on existing agreements before doing this.

  • Funding of capital expenditure

If you are considering investing in new equipment for your business, a BBLS loan could be a more attractive alternative to traditional business borrowing options.

Although at the time of writing it has not been announced how long the BBLS or CBILS will be available, it is unlikely that it will be indefinitely and therefore it is sensible to consider this sooner rather than later.

You can find more details on the Bounce Back loans and indeed the larger Coronavirus Business Interruption Loans on the British Bank Website.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Self Employment Income Support Scheme

1 min read

HM Revenue & Customs have today released a guide detailing how it will assess eligibility for the Self Employment Income Support Scheme for sole trader businesses that have been affected by COVID-19.

The guide sets out how the profits will be calculated, on which the grant will be based.  There are no real surprises, although it is worth noting:

  1.  Losses brought forward are not taken into consideration
  2. Capital allowances will be taken into account

The fact that capital allowances are taken into account could mean that for those which purchased a large item of equipment, such as a new van, and have taken advantage of the Annual Investment Allowance will be disadvantaged as their profits will be much lower and therefore will impact the grant they are entitled to.  In certain circumstances, it could also mean they are not eligible for the scheme at all.  

You can find the full guide by following the link below.

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

Information Commissioner’s Office (ICO)

2 min read

Thousands of small-business owners and landlords say they are confused by Information Commissioners Office (ICO) letters demanding a fee to ensure the protection of their customers’ and tenants’ personal information.

The Information Commissioner’s Office (ICO) upholds information rights in the public interest, promoting openness by public bodies and data privacy for individuals. ICO is an executive non-departmental public body, sponsored by the Department for Digital, Culture, Media and Sport. The organisation covers the following:

  • Data Protection Act
  • Freedom of Information Act
  • Privacy and Electronic Communications Regulations (PECR)
  • Environmental Information Regulations
  • INSPIRE Regulations
  • The re-use of Public Sector Information Regulations

Data protection fee

Recently, the Information Commissioners Office (ICO) has launched a campaign to remind small companies and SME’s of their legal responsibility to pay a data protection fee. For most small companies the charge is £40 or £60 a year. The move marks the start of an extensive programme to make sure the Data Protection Fee is paid by all those who need to pay it, unless they are exempt. 

They apply to companies that store personal information which can be used to identify someone which is stored electronically such as a computer, camera or smartphone such as clients’ names addresses and telephone numbers for work purposes. It is likely you’ll need to pay and there is a fine up to £4,000 for not registering.

Fee Checker

If you have received a letter from the ICO, it is a useful reminder that you need to either pay your fee or let the ICO know you are exempt, so they can update their records. Alternatively, you can quickly and easily find out if your organisation needs to pay the fee by using ico.org.uk/fee-checker, unless your business is exempt fill out the form at https://ico.org.uk/no-fee

For companies unsure if they are exempt, there is a helpline number: 0303 123 1113.

The charge will also apply to a wide range of landlords, institutions, including schools and solicitors, but not the police or anyone who stores information for judicial reasons.

CCTV

It is likely an annual fee payment is due for businesses holding personal information, for business purposes on any electronic device, including using CCTV for crime prevention purposes.

Be aware of scams

The ICO is warning companies to be aware of scams relating to payment of the data protection fee. Businesses that receive a letter, text message, email or telephone call from ICO representatives and want to check that it’s genuine please search ‘ICO fee’ using your usual search engine. Follow the top results to website links which begin with https://ico.org.uk, and this will bring you to the official website.

Staying compliant

Stay up to date with resources on GDPR and compliance for small businesses by visiting ico.org.uk/hub for more information.

We can help you with all aspects of business compliance. Please contact us for further advice and assistance.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice. Each comment posted by third party readers/subscribers of our website on topics is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for advice.

Capital Gains Tax

2 min read

Previously, disposals of UK residential properties are reported and any capital gains tax (CGT) calculated through your Self-assessment Tax Return.  The tax is therefore due for payment on the 31st January following the tax year of disposal.

What is changing?

This will all change for disposals of UK residential property after 6th April 2020 (the date of disposal is normally deemed to be the date of exchange). For these disposals, they must be reported to HM Revenue and Customs and the Capital Gains Tax paid within 30 days of the date of completion via the Capital Gains Tax on UK residential property service.

There is an exemption for the disposals where there is no tax to pay. Typically, these include properties that are covered by the main residence exemption; gains within the individual’s capital gains exemption or where there are losses from earlier capital disposals that reduce the gain below the exemption.

It is therefore vital to start collating information to compute the gain as soon as a disposal is anticipated.  In some cases, a disposal may require professional valuations to be obtained.

CGT liability

There are penalties for late filing of the information and payment of the Capital Gains Tax which follow the same rules as for self-assessment.

For those that do not normally file a Self-assessment Tax Return, there would be no need to do so in respect of the disposal. For those that do, they will need to disclose the gain on the Self-assessment Return as well.

When filing through the Capital Gains Tax in UK residential property service the tax payable is, in many cases, likely to be an estimated as it is not known the total income will be for the year or there may be later capital disposals the at affect the amount payable. The tax is therefore treated as a payment on account of the final liability which will be finalised either as an amendment via new service or disclosure of the final position on a self-assessment Tax Return.

The new rules apply to individuals, personal representatives and trustees.

How we can help

We are always on hand to answer any questions you may have about Capital Gains Tax. We can advise as to the best course of action in your own particular circumstances, so please do contact us.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

 

HMRC delays the introduction of off-payroll rules to the private sector

3 min read

The reforms will shift the responsibility for assessing employment status to the organisations employing individuals. The rules would have applied to contractors working for medium and large organisations in the private sector, and were due to come into effect on 6 April.

Steve Barclay, Chief Secretary to the Treasury, stressed that the introduction of the rules has simply been delayed, rather than cancelled. The rules will now take effect on 6 April 2021. 

In a statement, HMRC said: ‘This is part of additional support for businesses and individuals to deal with the economic impacts of COVID-19. 

‘This means that the different rules that exist for inside and outside the public sector will continue to apply until 6 April 2021.’ 

The off-payroll rules have applied to the public sector since 2017 and, following a review of the proposed changes earlier in the year, were to be amended to include intermediaries supplying personal services in the private sector.

Commenting on the delay, Andy Chamberlain, Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), said: ‘The government has done the sensible thing by delaying the changes to IR35 in the private sector.

‘This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the government to do more. It must create an emergency Income Protection Fund to keep the UK’s crucial self-employed businesses afloat.’

The ‘Intermediaries Regulations’

The Intermediaries Regulations, also known as IR35, apply to individuals who provide their personal services via an ‘intermediary’. An intermediary may be another individual, a partnership, an unincorporated association or a company; however, the most common structure is a worker providing their services via their own company – known as ‘personal service companies’ (PSCs). 

The rules are specifically designed to prevent the avoidance of tax and national insurance contributions (NICs) by those using PSCs and partnerships. The rules do not stop individuals selling their services through either their own PSC or a partnership. However, they do seek to remove any possible tax advantages from doing so. Instead of allowing contractors to extract taxable profits as dividends, thereby avoiding income tax and NICs, they would need to be paid as if the payment is a salary.

The IR35 rules apply to individuals who would be classed as employees, rather than self-employed, if they supplied their services as an individual rather than through their PSC.

HMRC has made a tool known as the ‘check employment status for tax’ (CEST) tool. This is available for organisations that need to determine who IR35 applies to. https://www.gov.uk/guidance/check-employment-status-for-tax

Changes to private sector contractors

In 2017, HMRC introduced new off-payroll rules to the public sector, which saw some contractors’ net income cut significantly. The rules shifted the responsibility for IR35 compliance from the individual contractor to a public body or recruitment agency. It is intended that similar rules are applied to the private sector.

The effect of these rules will be:

  • the medium or large business (the end user) will asses the status of the PSC. They will then inform the contractor (and agency paying the PSC if applicable) or their determination and reasoning. The PSC/Agency has a right to appeal the decision.
  • If the PSC is deemed to be within IR35, the medium or large business (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
  • generally, the entity that pays the PSC for the services must deduct Pay as You Earn (PAYE) and employee NICs as if the deemed payment is a salary paid to an employee
  • the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment, but also employer NICs on the deemed payment 
  • the net amount received by the PSC can be passed on to the individual without the company deducting any further PAYE and NICs.

Going forward

Chancellor Rishi Sunak has promised that penalties for IR35 breaches will not be ‘heavy handed’ during the first year of the implementation of off-payroll rules to the private sector. Mr Sunak said that there will be a soft-landing penalty period where HMRC will allow organisations to adjust to new measures.

Commenting on IR35, Mr Sunak said:

‘We are shortly to publish a review of how it should be implemented with some tweaks and improvements to ensure that the transition is as seamless as possible. ‘I can also tell you that I have spent time with HMRC to ensure that they are not going to be at all heavy handed for the first year to give time to adjust as well, which is an appropriate thing to do.

‘What IR35 does is change the balance, so instead of people making the assumptions about how they should be taxed, we put the onus on the company to make that assessment for them.’

How we can help

We are always on hand to answer any questions you may have about off-payroll working. We can advise as to the best course of action in your own particular circumstances. If IR35 does apply to you we can help with the necessary record keeping and calculations so please do contact us.

Entrepreneurs’ Relief

2 min read

Entrepreneurs’ Relief, is available for those in business, which may reduce the tax rate on the first £10 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

From 6 April 2019, in a change to the previous rules, entrepreneurs’ relief is available to individuals on the disposal after two complete qualifying years of:

  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual’s ‘personal’ trading company
  • assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for ER, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of ER are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Entrepreneurs’ Relief you may still be able to take advantage of the ow 10% rate of tax.

Entrepreneurs’ Relief has been extended to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your ER planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.

Investors’ Relief (IR)

1 min read

If you do not meet the criteria for Entrepreneurs’ Relief you may still be able to take advantage of the ow 10% rate of tax.

Entrepreneurs’ Relief has been extended to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

How we can help

We can advise as to the best course of action in your own particular circumstances. If IR35 does apply to you we can help with the necessary record keeping and calculations so please do contact us.

The construction industry and VAT: analysing the changes

6 min read

The VAT domestic reverse charge for building and construction services comes into effect from 1 October 2019. Given the scale of the changes, it would be appropriate for businesses to plan for the reverse charge now.

The reverse charge: an overview

The reverse charge represents part of a government clamp-down on VAT fraud. Large amounts of VAT are lost through ‘missing trader’ fraud. As part of this type of fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. Construction is considered a particularly high-risk sector because of the potential to make supplies with minimal input tax but considerable output tax.

The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for. In future, the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a ‘reverse charge’.

The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be used through the CIS supply chain, up to the point where the recipient is no longer a business making supplies of specified construction services. The rules refer to this as the ‘end-user’.

Broadly then, the reverse charge means that a contractor receiving a supply of specified construction services has to account for the output VAT due – rather than the subcontractor supplying the services. The contractor then also has to deduct the VAT due on the supply as input VAT, subject to the normal rules. In most cases, no net tax on the transaction will be payable to HMRC.

The charge affects only supplies at standard or reduced rates where payments are required to be reported via CIS and not to:

  • zero-rated supplies;
  • services supplied to ‘end-users’ or ‘intermediary suppliers’.

Under the scheme a VAT-registered business, receiving a supply of specified services from another VAT-registered business, for onward sale, on or after 1 October 2019:

  • should account for the output VAT on supplies received through its VAT return
  • does not pay the output VAT to its supplier on supplies received from them
  • can reclaim the VAT on supplies received as input tax, subject to normal VAT rules.

The supplier should issue a VAT invoice, indicating the supplies are subject to the reverse charge. An end-user should notify its end-user status, so the supplier can charge VAT in the usual way.

Example

Safe as Houses Ltd is a VAT-registered contractor. It uses Brickyard Bill, who is also VAT-registered. Brickyard Bill tells Safe as Houses that the reverse charge applies.

Safe as Houses does not pay VAT to Brickyard Bill. It accounts for the VAT on its own VAT return, entering it as both output and input tax. It enters the value of the purchase from Brickyard Bill as part of its inputs. It does not include the value in its outputs.

Their VAT returns will look like this:

  • Brickyard Bill puts the value of the sales in box 6 of the VAT return, but no output tax in box 1
  • Safe as Houses uses box 1 to declare the output tax on the services from Brickyard Bill to which the charge applies. It doesn’t include the value of the transaction as an output in box 6. It reclaims the input tax on reverse charge purchases in box 4 and includes the value of purchases in box 7.

Consequences for businesses

Details of the charge have changed since it was first announced. Originally, the charge was to apply to ‘labour-only’ supplies. Now however, the charge applies to construction services, including materials. With the domestic reverse charge, the value of reverse charge supplies will not count towards the VAT registration threshold of the recipient business.

For many construction businesses, the change is likely to have far-reaching consequences. Processes will need to be in place to ensure VAT accounting systems are compliant with the unusual requirements of the reverse charge. The rules require a number of verification checks to ascertain VAT status of customers, CIS registration (in some circumstances) and end-user or intermediary supplier status.

Given that output VAT currently provides many businesses with a positive cashflow advantage, the impact on cashflow and liquidity will also need appraisal. Changing to a monthly VAT return cycle to accelerate payments due from HMRC may be of benefit. The VAT Flat Rate Scheme (FRS) may no longer be of benefit, and reverse charge transactions cannot be dealt with through the Cash Accounting Scheme.

Specified services

Construction services covered by the reverse charge are those falling within the category of ‘construction operations’ for the CIS, and include the construction, alteration, repair, extension, demolition or dismantling of buildings or structures, including offshore installations.

Works forming part of the land are also included, such as walls; pipe and power lines. So too are preparatory services such as site clearance and scaffold erection; the installation of systems of heating and lighting; and painting and decorating. The reverse charge includes goods, where supplied with specified services.

Supplies excluded from the charge, where these are supplied on their own, include the services of architects, surveyors and some consultants; and the manufacture of building or engineering components, materials or plant.

Services with reverse charge and excluded elements

Where excluded services are supplied with services subject to the reverse charge the whole supply is subject to the reverse charge. As it can be difficult to determine in some situations whether the reverse charge applies, if there has already been a reverse charge supply on a construction site, any subsequent supplies on that site between the same parties may be treated as reverse charge supplies, if both parties agree.

Where there is any doubt, HMRC recommends reverse charging, if the recipient is VAT-registered and payments are subject to the CIS.

Considering end users

The domestic reverse charge applies to VAT-registered businesses throughout the CIS supply chain, but is designed not to apply to ‘end-users’ or ‘intermediary suppliers’. ’End-users’ are VAT-registered businesses receiving supplies of specified services which are not sold on as construction services.

Examples could be a construction firm selling an interest in land as a newly built office, or a large retail business having trading premises built for its own use. Intermediary suppliers are VAT and CIS registered businesses that are connected or linked to end-users. Examples could be landlords and tenants, or recharges of building and construction services within a group of companies.

Businesses will need to know when they are dealing with an end-user or intermediary supplier, so they can invoice appropriately. The end-user or intermediary supplier should inform the supplier of their status so that VAT can be charged as normal. If the end-user does not provide confirmation of status, the supplier should issue a reverse charge invoice.

Businesses dealing frequently with end users may wish to include a statement, in business terms and conditions, to the effect that it is assumed that the customer is an end-user, unless they indicate otherwise.

Effective invoicing

To invoice correctly under the new rules, suppliers should mark the invoice to the effect that the domestic reverse charge applies, and that the customer must account for VAT. The amount of VAT due under the charge should be clearly stated on the invoice. It should not be included in the amount shown as total VAT charged.

The rules require that when the customer is liable for VAT, an invoice should include the reference ‘reverse charge’. Any of these are acceptable:

  • Reverse charge: VAT Act 1994 Section 55A applies
  • Reverse charge: S55A VATA 94 applies
  • Reverse charge: Customer to pay the VAT to HMRC.

Where invoices are created with an IT system that cannot show the amount to be accounted for, HMRC refers suppliers to VAT Notice 735, ‘Domestic reverse charge procedure’ bit.ly/2OsGJWK.

HMRC’s policy

HMRC has issued technical guidance bit.ly/2WHQ5R2.

There will be a ‘light touch’ approach to genuine mistakes and penalties for six months from October where businesses are aiming to comply and act in good faith. Businesses knowingly claiming end-user status when the reverse charge should have applied, however, will be liable for the tax due and may be liable for penalties.

How will the changes affect you

The new rules will have a significant effect on VAT compliance and cash flow. Key questions to consider include:

  • is the reverse charge likely to apply to supplies to and from other VAT-registered contractors and subcontractors you deal with?
  • how will your accounting systems calculate and report reverse charge supplies?
  • how will you check on an ongoing basis that supplies and purchases are treated correctly?
  • will your cashflow suffer if you no longer hold output tax, and would changing to monthly VAT returns help?
  • if you use the VAT Flat Rate Scheme, how will the charge impact you?

Overall, the change may mean that the construction sector is likely to be subject to considerable HMRC scrutiny in the foreseeable future. Under the rules, for example, some subcontractors, with VAT to reclaim on inputs but no VAT to charge on outputs, will regularly receive VAT refunds.

A regular repayment position could trigger a VAT inspection. For these reasons, we would recommend taking stock of VAT and CIS compliance across the board.

How we can help

In this blog, we have only been able to touch on some of the key issues. Please contact us for an in-depth discussion on the matter.

Extra resources

DISCLAIMER: This blog is for guidance only, and professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Top Three Accountants in Maidstone

By Athos Louca

1 min readLoucas have been awarded one of the Top Three Best Rated Accountants in Maidstone, Kent. Using a 50-point inspection, The Three Best Rated team based the Top Three Accountants award on reputation, history, value for money and reviews from clients.

 


Top Accountants in Maidstone Kent

The Best Three Rated team add, “we display only businesses that are verified by our employees. You can call it “Due Diligence” or “Common Sense. We call it Hard Work. Our website is updated on a regular basis for quality and latest business information. ”

Are you looking for business or tax advice? Do you need expert help in evaluating your business or personal finances? Contact our accountants team today to get startedT: 01622 758257  

Can you claim vat back on your staff Christmas party?

By Stuart Shaw

2 min readWith Christmas fast approaching many Company Directors want to thank and reward their staff for their hard work. For limited companies, there are certain tax benefits on staff annual and Christmas parties and giving gifts to employees.

Tax free staff Annual and Christmas parties

For any annual event, be it a summer BBQ or Christmas Party, HMRC provides a tax relief for all employees set at £150 per head. The total claim for any annual events combined requires being below the £150 limit to qualify per employee.

How to calculate the cost per head?

The cost per head for the whole event from start to finish can include;

  • food
  • drink
  • entertainment
  • taxis home
  • overnight accommodation

If the VAT, inclusive of cost of the event is over the £150 limit the whole benefit is taxable as a benefit in kind. To calculate the cost per head of your annual or Christmas party, divide the total cost of the function by the number of employees.

Can you bring a guest?

The events are mainly for entertaining employees. If the company has several branches then the event is open to all staff in their location. The £150 threshold is per employee and is split between any employees’ partners or guests who attend too. The cost of the whole event is an allowable expense for your business.

Can you invite suppliers or customers?

When inviting customers or suppliers to the Christmas party, VAT relief may be restricted as non-employees are also being entertained. Event’s for only directors, partners or sole proprietors,  will not be tax deductible as all employees are required to be invited for it to qualify.

What gifts can you give that are tax allowable?

Employers can give gifts listed below to employees as tax deductible, trivial benefit, as long as it does not exceed £50.

  • Turkey,
  • a bottle of wine
  • a box of chocolates

Unfortunately, a hamper with food and wine will not be classed as a trivial benefit. Christmas presents paid in cash to staff are taxed as earnings with tax and national insurance. This also applies with gift vouchers in excess of £50 which are exchangeable for goods and services too.

Record keeping for your annual and Christmas parties

For all events, keep the receipts. By make a note of the employees who attended keeps records organised too.

From Loucas we hope you enjoy your Christmas festivities and that your employees also enjoy their seasonal gifts.

Have a great time.

For more advice on trivial benefits read more on trivial benefits and what they are?