The following seasonal gifts as “trivial” benefits and HMRC do not seek to tax them as employment income or benefits:
• A turkey (but not a hamper).
• A box of chocolates.
• A bottle of ordinary wine or two (not a case)
From 6 April 2016 there is a statutory exemption for trivial benefits with a cost not exceeding £50.
• Trivial benefits – HMRC
• Employment Income Manual – HMRC
Entertaining whether staff or customers is not usually allowable for tax purposes. By concession however you are allowed £150 per person (£300 for an employee and their partner) per annum for staff events.
If you provide your employees with gifts at an annual party, the cost of the gifts could be added to the cost of the function by HMRC. Make sure you give out the gifts separately from event, as the cost of the gifts could take you over the £150 per head limit. Treat trivial gifts as “staff welfare” in the accounts, the expense is fully tax deductible.
Input VAT is reclaimable by the employer on the cost of trivial benefits made to staff. If input VAT is reclaimed by a one-man owner-manager or for the cost of an event open only to the directors (so other staff are excluded), HMRC will disallow a VAT recovery on the grounds that the motive behind incurring the cost was a personal one. It is difficult to try and disprove that this is not actually the case.