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Although I do not want to be portrayed as Scrooge this Christmas time, I thought it would be beneficial to remind everyone of how VAT should be accounted for on Christmas gifts and parties.
As we approach the festive season, many businesses choose to give gifts to their staff, suppliers or customers. These will be seen as for the purpose of the business, as they could be used to help motivate staff or to build stronger relationships with customers and suppliers. Therefore input VAT can be recovered on the purchase of the gifts.
The downside of this is that when the gift is made, a corresponding amount of output VAT may be due to HMRC, therefore creating a VAT neutral effect.
The only way that output VAT will not be chargeable on a business gift is if the value of gifts made to an individual in a year is below £50. When the value is less than £50, the input VAT can still be claimed, but no output VAT charge is required.
Please note that the £50 limit applies to all gifts made to any individual in the year. Should the value of multiple gifts to one individual exceed the £50 limit in any 12 month period, then output VAT will become payable on all of the gifts made to that individual in that year.
In this context, individual does mean individual, so you can give gifts with a value of £40 to two or more employees of one of your customers without needing to account for output VAT.
If you organise a Christmas party for your customers then this will be seen as business entertaining and any input VAT recovery on this is specifically blocked.
However, input VAT will be recoverable on the costs of a Christmas party arranged for your staff. A complication can however arise if the spouses or partners of staff also are allowed to attend the party.
If they are allowed to attend free of charge, then the input VAT recovery on the event must be apportioned between the number of staff attending and the number of non-staff attending, with only the element relating to your actual staff being recoverable.
However, should a more than nominal charge be made to the staff’s partners for attending the event, then input VAT can be recoverable in full. Output VAT will also be due on the charge made to the staff’s partners.
As always, VAT isn’t as simple as we would hope. If you would like to clarify your treatment of VAT on any of the issues discussed, please get in touch with me.
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