September 2021 marked the return to normal business life for many, following the hiatus caused by Covid, multiple lockdowns and the work from home rule. But as we head back into the office, into networking events and even begin entertaining colleagues and clients again, it’s perhaps a good time to remind ourselves of some of the guidelines on spending on gifts and entertainment.
The simple fact is that there is no actual limit on how much you can spend on staff and client entertainment – other than that set by your own (company) means. If you fancy flying to the Monaco Grand Prix, hiring a yacht in the marina for the weekend and dining on caviar and lobster, then in theory, if you can afford it you can book it.
P11D Taxable Expenses
Perhaps a better question to ask therefore is what are the tax implications of staff and client entertainment? The example given above may be affordable (for some) but would be hugely costly from a tax perspective as there are limits set by HMRC on how much you can spend on hospitality and gifts before they become taxable benefits. Taxable benefits are declared through the P11D returns system and can affect your personal allowance in subsequent years.
Some examples of staff entertainment tax limits are noted below but it is worth noting that entertaining clients or potential clients is not an allowable deduction for Corporation Tax purposes. Furthermore, the individual should also be notified of the value of the entertainment and should be declaring it back through their own business for P11d purposes. Suddenly Monaco is not so shiny, especially if you end up paying for it next year through a greatly reduced tax allowance!
As well as contending with tax on entertainment, the Bribery Act 2010 should also play a part in your decision making when entertaining clients. The act says any gift (includes hospitality) must:
- Not have the ‘intent to induce improper conduct’
- Be ‘proportional’
- Not be lavish
- Must not offend or discriminate
- Have (the ability) to offer an element of reciprocation
So, if you’re considering any significant gifts, events or hospitality to re-establish relationships or build brand awareness, it might be worth considering the following guidance:
- Use the gift or hospitality as a thank you, once business has been closed so it is a reward rather than an inducement
- Limit the value per head/individual to less than £50 in any single instance. At this level you can ensure a degree of reciprocation could be achieved even if it were your smallest client
- Ensure that you use the gifts or entertainment evenly as a reward, avoid cherry picking
- Avoid any gifts or hospitality that may be discriminatory or cause offence – wine tasting or events that involve gambling may not be appropriate to some religions and age groups or may not take account of someone’s personal circumstances
Whilst this refers to legislation, many companies are paying much closer attention to bribery and corruption as part of their own Corporate Social Responsibility and may have their own internal rules on employees receiving gifts or hospitality. So, it’s worth checking with possible attendees in advance.
The Christmas Party!
All being well, 2021 will see the return to the Xmas party, as DJs around the country dust off their copies of ‘Come On Eileen’ in preparation. You may therefore feel like making this one a big one. But sadly, there are some tax limitations around this too, centred around a per head allowance, whereby the total cost of the event is split evenly between those attending. However, that also requires the event to be open to all employees. The £150 allowance should include all costs associated with the event such as VAT, taxis and overnight accommodation. If its likely to exceed £150/head then consider asking staff to contribute to cover the excess. They may prefer doing this to having any additional spend show up on a P11d and impact their personal allowance next year – for the sake of a night out!
If there’s still some hesitation around big groups and hospitality, then you might consider a gift to staff. In this case the sensible limit comes down to £50 as this is classed as a trivial benefit for tax purposes. Broadly, a trivial benefit is one that is non-contractual, costs £50 (including VAT) or less per employee and is not for services performed. But be careful. If the cost exceeds £50, the whole benefit is taxed, not just the excess. Feeling like this is all too much to think about? Thinking vouchers or cash bonuses may be easier and avoid tax limits? The position on these is far simpler – both will be classed as income and taxed accordingly.
The world of entertaining, gifting and corporate hospitality has certainly changed a lot in the last decade through legislation, but increasingly internal checks and balances within organisations are playing a greater role in what is deemed acceptable. It may feel like a bit of a moral and legislative minefield but don’t ever let this distract from the benefit that can be gained by getting teams of clients or employees together to boost morale, celebrate successes and most importantly just to say thank you. Don’t lose sight of that.