Entertainment

Your company can pay for entertaining clients or potential clients, but this will not be an allowable deduction for Corporation Tax purposes. It’s still worth paying from the company, though, as it saves you the income tax you would otherwise pay on withdrawing the funds to pay the costs personally.

It makes no difference if the person being entertained is an existing customer, a potential customer, or any other person who is not an employee. The VAT element of entertaining can only be claimed when it relates to staff. Which leads to a further word of caution – if the staff member is acting as a host, and the purpose of the cost was to entertain the client, then no VAT can be reclaimed at all.

Staff Parties

Your limited company can pay for an annual event, and there are no personal tax implications if the total does not exceed £150 per head, including VAT. This doesn’t need to be one event either, just ‘annual’. So you could have a Christmas party and a summer BBQ, and both would be allowable for Corporation Tax purposes provided the total of both doesn’t exceed the £150 per head limit (if it goes £1 over, then the whole amount is a benefit in kind, so be careful!). The £150 limit includes food, drink, tickets to events, accommodation and a taxi fare home.

Trivial Benefits

Any ‘gift’ given as a trivial benefit cannot have cost you more than £50. This is irrespective of how much has been paid for it but rather its market value. The reason being if you give your employees, say, £500 worth of stock from your business, while it did not technically ‘cost’ you in money, it still has great value and could be sold on for personal profit. It has to be a material offering; you cannot simply hand someone cash or any voucher that can be redeemed for cash. This has to be a purely altruistic offering. So they cannot replace a bonus. Trivial benefits have to be one-offs or random acts of kindness. There cannot be a formal agreement between employee and employer about their supply and frequency. Again, this resembles a type of payment.

The legislation does not impose a limit on the number of trivial benefits that an employer can provide. An employee could potentially clock up £12,500 a year of tax-free benefits. This would equate to a £50 benefit on each of 250 working days in the year. However, such a scheme would fall foul of the reward for services rule.

The legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or officeholder of a close company (including benefits provided to members of their family or household).

For directors there is a limit of £300 per annum, but even then each trivial benefit cannot exceed £50, so you would need to give a max of 6 x £50 benefits. For employees, there is no defined limit, so they could potentially have several £50 trivial benefits during the year so long as they met the criteria for such, i.e., not exceeding £50 each or pro rata if a team benefit, Not cash or cash vouchers, not a contractual benefit or one as part of salary sacrifice, and not provided in respect of services provided as an employee. If you provide regular benefits to employees within this criteria, then it is the last point that HMRC would normally challenge on the basis as to why the company is provided regular benefits. In reality it can only be because of services rendered. Main commentary and examples of this are in the HMRC Booklet 480, although there are several commentaries online as well.

There are other tax-free options like an annual staff medical, medical treatment to return to work, trivial benefits, VDU vouchers for eye tests, childcare, parking, mobile phones, lunch for employees, employer pension advice, cycles, taxis to home after 9pm, long service awards and overnight expenses. Are you aware of them? Please feel free to contact us to discuss further.