An important part of creating a hard working team and building staff morale, is treating your staff well, for example by rewarding them with gifts or parties.
Not to mention the all important area in business of building on relationships and the business reputation by entertaining clients, or sending gifts as a thank you or to acknowledge certain events.
Entertainment can involve eating, drinking and other hospitality.
Sounds relatively straightforward on the surface, but then along comes HMRC to ruin the fun.
Entertaining suppliers or customers is unfortunately totally unallowable for tax purposes. This is because HMRC do not believe entertaining clients to be “wholly and exclusively” for business.
On a more positive note, entertaining your staff is allowable, provided it fits into the following description from HMRC:
- it’s an annual event, such as a Christmas party of Summer bbq
- it’s open to all of your employees
- it costs less than £150 per head
- you can have multiple events, providing the combined cost of the events is no more than £150 per head
Please note, if you go over £150 per head on any one function, the whole cost of the entertaining is disallowed, even if you only go over by £5 per head.
It is however, important to bear in mind that HMRC are quite strict about who classes as an “employee”. An “employee” has to be someone who is on your business’s payroll and being paid a salary – anyone else would be classed as business entertaining. If you are a sole trader or part of a partnership, you do not count as an employee as there is no legal difference between yourself and your business. If, however, you are a director of a limited company and you are on the payroll, you could claim entertainment providing there are other employees who aren’t directors, and everyone is invited! It is never simple, is it?
What about providing lunch in work; does this class as entertaining?
You can provide lunch/meals for your staff and claim tax relief, providing they fit into the following:
- available to all staff members
- provided at the place of work (i.e. not a restaurant or off site)
- must be on a reasonable scale (i.e. not an elaborate meal with wine)
So, if you are providing a meal because your staff are working late, or you have a meeting over lunch time, this is allowable if all of the above criteria is adhered to.
Virtually all gifts to customers are not allowable, however, gifts that contain an advertisement, are up to £50 per client per year and don’t include food, drink, tobacco or gift vouchers (basically most things you would like to receive!) are allowable.
When it comes to gifts to employees, on the other hand, is a little bit more flexible. Gifts (such as birthday/wedding presents) are allowable for tax relief providing it cost you £50 or less to provide, it isn’t cash or a cash voucher, it isn’t a reward for their work or performance and it isn’t in the terms of their contract. These are known as trivial benefits.
If you are unsure about a specific situation or have any other questions, please get in touch.