Christmas Expenses (Benefits in Kind or Subsistence?)

The festive season poses all kinds of taxation questions which would not ordinarily be raised.

In the normal run of things, taking your Clients out for a business lunch is considered to be subsistence for your employees and entertainment for clients; but if you are taking out Clients for a Christmas Lunch as part of thanking them for their annual custom the picture can appear more cloudy.

Likewise, how you process your Christmas hospitality, Christmas Parties, Christmas presents and other festive gifts all come with there own pitfalls, and getting it wrong can be very costly.

Festive Subsistence?
It is clearly laid out by the HM Revenue & Customs that you can reclaim the VAT portion of your employees business expenses and that this reimbursement is in no way a Benefit in Kind (i.e. having to be recorded on P11d’s - where there is a dispensation - or PSA’s) or entertainment (added back for Corporation tax).

Complex legislation on employee lunches means that many organisations do not claim their full entitlement of VAT and pay too much tax. The important point to note is that, whatever the time of year, where employees are dinning with Clients, they must record a legitimate reason for that expense. 

Example:        

A director, employee and two clients go out for festive lunch following a meeting at a client site.  The total bill comes to £150.

Many organisations will not claim back any VAT and submit it all as entertainment, whilst some will erroneously reclaim it all:

Expense	Reason	Net	VAT	Total	Corporation Tax
Lunch	Product Demonstration	£127.65	£22.35	£150.00	£45

Processing the claim in this way can lead to a HMRC bill for the over claim or a loss in revenue for your organisation by not taking advantage of your full entitlement

A festive thank you lunch following a site meeting can reasonably be categorised as an Annual Customer Review and this means that, with the VAT & Tax regulations for employees, directors and guests being different, organisations should claim:

Expense	Reason	Net	VAT	Total	Corporation Tax
Lunch	Product Demonstration	£127.65	£11.16	£150.00	£22.50

On the other hand if the visit was only for entertainment reasons, no VAT is reclaimable and the whole amount should be treated as Entertainment.

Simple Subsistence Management
expenses asks the right questions in order for the correct amount of VAT, Entertainment and Benefits in Kind to be automatically calculated.  Users do not need to be VAT experts to submit a correctly calculated claim.

expenses does everything for you, including running a scheduled report detailing how much VAT, employee Tax and corporation Tax you can reclaim from the Tax office!

Festive Benefits in Kind?
The Inland Revenue does offer some relief when it comes to entertaining your employees.  Where an employer provides a Christmas party, or other annual event(s) which is available to all employees and the total expenditure in the tax year is no more than £150 per person then those costs will be tax deductible by the company and will not be taxed on your employees as a Benefit in Kind.

This means that as long as the average cost per attendee is under £150 (per tax year), family or friends can also be invited to join in the fun, without fear of losing the valuable exemption.

But if an employee is to be reimbursed for their transport to the event, this would be considered a benefit in kind, as a taxi to a Christmas party is not considered to be a legitimate business expense.

Simple Benefit in Kind Management
By recording each employee expense and benefits in kind item, expenses enables you to report and export each item that should be included in each employee’s PSA.

expenses is configured to recognise whether an employee is on the basic or higher rate of tax and, from this information, gives you an end of year report showing the total value of benefits provided to basic rate employee, and the value of benefits to higher rate employees.  Having these two figures at the touch of a button means that calculating each employee’s annual PSA amount takes minutes, rather than days.

As with all expenses reports, the PSA data is generated to give you a quick total, but also facilitates the drilling down to the route of every item claimed by every employee. This also enables you to identify items that do not need to be included where there is a business reason for the expenditure rather than a Benefits in Kind liability.

For further information on expenses:
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