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This year has seen the hospitality scene come back with a vengeance, so I am sure many of you will be taking full advantage of taking your team out for a Christmas night out.
So we thought a handy blog would be a good idea to help business owners understand which expenses they can claim VAT on and are deductible for tax.
Business Entertainment is broadly grouped into two categories, one is entertainment of employees and the second is entertainment of clients. As there is so much to talk about, we are going to split this over two blogs, this blog is going to deal with the entertainment of employees.
What is the entertainment of employees?
Staff entertainment is providing hospitality to your employees which can include meals, event tickets, golf days, spa days or even use of business assets.
Which expenses can I claim to entertain my staff?
There are some instances where you can entertain your staff and claim back VAT, however, there are certain limits.
You can entertain your staff up to £150 per year per head. For most small businesses this is split between a Christmas meal and a Summer BBQ but can use this for any purpose and you must offer these events to all your staff.
For these types of expenses, you can claim back the VAT and claim tax relief but this cannot exceed over £150 per head or the whole lot is disallowable.
In order to record this in your accounts, generally, I would code this to “Staff Welfare” or set up a new nominal code for “Employee Entertainment”. Either way, make sure you keep a copy of your invoices and receipts.
Can I give my employees a gift or voucher?
If you own a limited company (sole traders-sorry not for you!) you can gift yourself and any employees vouchers or a present up to £50 from your favourite places this also includes alcohol.
BUT as with anything tax wise there are always rules so.... here goes:
If this is a close company, for example, a director and a shareholder this is capped at £300 per tax year.
The voucher cannot be over £50 at any given time... not even a penny. If it is, the whole lot is not deductible for tax.
You must NOT give the voucher as a reward for work.... it’s a gift because it is a nice thing to do, or because it's #Friday.
The voucher cannot be traded for cash.
If you abide by the rules, the vouchers can be deductible in full for tax.
I have subcontractors, can I entertain them and claim the VAT back?
Sadly, subcontractors, former employees or interviewees are not staff and you would not be able to entertain them and claim any VAT or tax deduction. In addition, if you have any shareholders who are not employees, you cannot entertain them either.
What is “Subsistence”?
Subsistence is the general term given to meals and other expenses which relate to travelling for business purposes.
Can I claim VAT back on subsistence for a business trip?
We would always recommend having a travel and subsistence policy in place so your staff understand what they can and cannot claim from your business, by doing this you can ensure you are claiming the correct VAT and prevent misunderstandings.
You can claim the VAT back on travel, subsistence and accommodation for your employees, directors and partners.
Can I claim VAT back on alcohol when I am on a business trip?
We must get asked this question at least 10 times a month!
The answer is a tentative “yes”, however, it depends on your company policy. HMRC guidance states this needs to be ‘reasonable’ but you should be able to claim back the VAT if you are on a business trip on your own or with other staff members of the same firm and you have a drink of wine with a meal. You must keep all receipts with details of what you had and the VAT rates too.
My staff are away a lot on business, can I use a flat rate to reimburse them instead of processing all the receipts?
We completely get this, if an employee is away on average we see about 5 receipts per day and the admin time it takes can be excessive. Currently, the guidance is:
5 Hours - £5
10 Hours - £10
15+ Hours - £25
For more information on this: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30240
However, you need to pick whether to use flat rate or to claim expenses and not switch between the two. This is where having an employee manual can help.
If you are struggling with all the receipts for staff, we have a digital way of helping you with this, just drop us an email and we would be happy to give you a demonstration.
Our next blog will be on client and business entertainment, so stay tuned for this. As always, if you have any questions about this or any other questions, drop us an email at active@activeledgers.co.uk or DM on Instagram, Facebook or LinkedIn.