As the festive season is almost upon us, it’s important for businesses to understand the rules around VAT so that they can make the most of seasonal spending.
Whether you’re throwing a party for your team or sending gifts to your clients or suppliers, it can be difficult to navigate the complexities of VAT regulations, especially when it comes to holiday celebrations and gift-giving. Luckily, Head of Indirect Tax, Matt Orange, is on hand to help you understand the rules so you can maximise VAT reclaim opportunities while staying compliant.
Festive celebrations for your team
Many businesses like to treat their team and round off the year with a Christmas party, as a way of saying thank you for their hard work.
Who can VAT be claimed for?
When it comes to reclaiming the VAT on the costs, it’s important to consider who is attending the party. That’s because the VAT can only be claimed on entertainment provided to employees of the business.
The VAT cannot be claimed for entertaining customers, suppliers, staff spouses or partners, so if any of these attend, only part of the VAT can be reclaimed. Former employees are also excluded.
What about company directors?
Entertainment provided only for directors or partners is not allowed, but if they attend staff parties with other employees there is no need to disallow the VAT on the part relating to their entertainment.
For example, a business hosts a Christmas party and 40 staff plus 5 company directors attend. Each bring one guest plus some key suppliers and customers are also invited, so the total number of people who attend is 90. In this situation 50% of the VAT can be claimed.
Is there a limit to claim the VAT?
Whilst there is a £150 limit per head for other taxes the same does not apply for VAT purposes.
Businesses can apportion the amount of VAT that is claimed rather analyse the bill on an item-by-item basis.
Seasonal gift-giving rules for businesses
Businesses can benefit from specific VAT rules when giving gifts, provided the gifts serve a genuine business purpose. These regulations allow companies to reclaim VAT on gift purchases as input tax without requiring additional tax adjustments.
Key guidelines:
- There is a £50 per person annual limit on tax-free business gifts
- The £50 threshold excludes VAT
- Businesses must maintain accurate records of gifts given
What happens if I exceed the £50 per person limit?
If a business gives gifts to a single recipient totalling more than £50 within a 12-month period, VAT becomes payable on the entire value of those gifts.
For example, if a company has already given a customer a £20 gift in July and a £15 gift in October, a further £20 gift at Christmas would trigger VAT on the total £55 worth of gifts.
What are acceptable business gifts?
Typical qualifying business gifts include:
- A box of chocolates
- A bottle of wine
- Tokens of appreciation for customers
It’s important to remember that businesses cannot claim VAT on personal gifts to friends and family, as these do not constitute legitimate business expenses.
Here to help
Hopefully Matt’s tips will help ensure you stay compliant whilst treating your team, customers and suppliers this festive season, but if you’d like more support and advice on indirect tax compliance, get in touch with our tax team by completing the form below.
