‘Tis The Season Of Giving – The VAT Rules For Seasonal Gifts & Staff Parties

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Seasonal Gifts

Gifts given to staff or customers are legitimate business expenses and therefore the VAT incurred on the cost of these can be recovered as input tax. However, this gift is classed as making a supply for VAT purposes, so as a general rule the business will have to account for VAT on the value of the gift.

There is an exception however. If the cost of the gift, or series of gifts, to the same person doesn’t total more than £50 (excluding VAT) in any 12 month period then VAT can be reclaimed in full without the need to account for output VAT.

If the gifts given in the year exceed £50 then HMRC will allow businesses to avoid creating a notional sale in order to account for the output VAT, as long as the input VAT was not claimed on the initial purchase.

It is also worth noting that the gift does not have to feature any form of business advertising to qualify (as with direct taxes).

The £50 limit does not include administrative expenses, e.g. postage and packaging, and the offering must meet the gift criteria in order to qualify.

Staff Parties

There is no restriction on the amount of input VAT that can be recovered on the cost of staff parties and, as long as the employer does not charge for providing the entertainment, no output tax is due.

This rule relates to the entertainment of staff only. If business contacts are entertained then the input tax cannot be recovered – not even a proportion. Even if the majority of attendees are employees, if business contacts are also present, then businesses cannot claim any of the input VAT.

An apportionment is necessary, however, should employees bring guests along to the party (spouses, etc.) In cases where no charge is imposed for guests to attend, the input VAT should be apportioned between staff and guests and only the proportion relating to the employees should be claimed.

Also bear in mind that if the firm’s partners go to a Christmas soiree on their own, the VAT incurred on this is not input tax and cannot be recovered.

So there you have it….. Merry Christmas from the Taxman!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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A Tax Efficient Company Car

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In recent years the government has changed the way that company cars are taxed. They have been trying to encourage more people to be environmentally friendly. Consequently, the higher a car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

With this in mind, Mitsubishi has recently launched the Plug-in Hybrid Electric Vehicle (PHEV) version of its all new Outlander. This vehicle comes with some impressive green credentials, only producing CO2 emissions of 44g/km and achieving a mightily impressive 148mpg.

The fact that this vehicle has such low emissions makes it the ideal company car.

In the year of purchase, the company would be able to claim back 100% of the cost of the vehicle against its tax bill.

The benefit in kind rating against the employee is only 5%. This means that an employee paying tax at basic rate would only pay £596 in tax for the use of the vehicle and fuel purchased during the year. As you can see from the table below this easily outstrips its nearest rivals:

Tax payable on benefit Mitsubishi Outlander GX4h Auto BMW X3 Xdrive SE Auto Audi Q3 S-Line Plus Auto Mercedes E-Class SE Estate Auto
At basic rate £596 £2,575 £3,040 £2,770
At higher rate £1,192 £5,150 £6,080 £5,540

If you currently live in London or travel there frequently, there is also the additional good news that the Outlander PHEV is registered as congestion charge exempt, allowing you to travel through London free of charge.There are also grants currently available on the purchase of this vehicle. You will be able to get a grant of £5,000 against the initial cost of the vehicle. British Gas are also currently able to install high speed chargers at your home, so that you would be able to take advantage of cheap Economy 7 electricity by charging your vehicle overnight.

Do you have any queries about company cars? Here at Green & Co, we are more than happy to help you.

Should you wish to read more about the new Mitsubishi Outlander PHEV, please visit the website.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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Autumn Statement – The Big Question

Ed Gooderham and Nick Park look at two key issues raised by the Autumn Statement in answer to the South Wales Argus‘ Big Question this week (see below for their answer in full):

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“The Autumn Statement has raised, in particular, two key issues.

The good news is that there are changes to Stamp Duty Land Tax (SDLT). Under the old rules (the slab system), house buyers paid tax at a single rate on the entire property price. The new rules mean that house buyers will only pay the relevant rate of tax on the part of the property price that falls within each tax band. As with the old system, there will be no stamp duty on properties under £125,000. However, at the £250,000 threshold, the duty only increases to 2% and there are increases to 5% and 10% for properties up to £925,000 and £1.5m respectively.  These changes will greatly reduce the burden of stamp duty on those looking to get a foot on the housing ladder.

The bad news relates to businesses changing from sole traders or partnerships to limited companies. Based on the information that we have seen so far, it will no longer be possible to claim Entrepreneurs’ Relief on the sale of goodwill to a related company. Similarly, it will no longer be possible to claim Corporation Tax Relief on goodwill purchased from a related party. These changes are effective immediately, but do not affect purchased goodwill from unrelated parties.”

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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HMRC: Coming To A Bank Account Near You?

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In times past tax collectors would knock doors in pursuit of levies and it appears that HMRC are now considering the modern equivalent – recovery of unpaid taxes directly from debtors’ bank and building society accounts. This new power would be exercised in cases where tax payers are able to pay outstanding taxes but choose not to do so, and do not respond to HMRC’s attempts to contact them.

The intention for the Direct Recovery of Debts (DRD) was announced in the 2014 Budget and the consultation period ran from May to July 2014. The 26 page consultation document included questions on minimum balances, time lines and joint accounts and considered potential safeguards to protect vulnerable tax payers.

The DRD consultation has been met with controversy and experts have expressed concern for a number reasons, such as the absence of independent oversight. Currently HMRC are analysing the feedback received during the consultation period and legislation is expected to be taken forward as part of the 2015 Finance Bill.

HMRC state that DRD will only apply to around 0.2% of taxpayers in the self assessment population, however these plans will undoubtedly split opinion. Watch this space to see whether these proposals see the light of day!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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Prize Draw Winner – November 2014

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The winner of the feedback prize draw for November 2014 is Cardiff City Retail Partnership Ltd. A box of chocolates is on its way to them.

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National Award For Green & Co

Yesterday’s coverage of our recent award – Independent Firm Of The Year, Wales – in the South Wales Argus:

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‘Tis The Season To Be Jolly…

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In the spirit of seasonal cheer, it’s that time of year again to remind you all that HMRC has a festive loophole that means businesses pay no tax on corporate Christmas parties.

Businesses of all sizes are allowed to spend a tax-free amount of up to £150 (inc. VAT) per member of staff each year. The limit includes a whole host of items such as accommodation and transport, not only food and drink. What’s more, as long as the cost per head stays under the limit, employees can bring their significant others along.

After a busy year of work, what better way to reward your employees than with a chance to let their hair down? A Christmas party can be an excellent way of boosting staff morale as days get colder and shorter, and can make your employees feel valued for their hard work, as well as encouraging productivity.

This tax-free limit applies for a whole tax year, so an employer can actually put on both a summer and winter party, as long as the total cost is less than £150 per head.

A word of caution, however, as if you spend as much as one penny over this limit, you will be liable for income tax and National insurance on the whole amount.

This is a rare gift from the taxman, so make sure you take advantage and deck the halls for your tax-free office Christmas party!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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