Budget 2017 and the changes for small business

Moore Accountancy were not overly enamoured about “Spreadsheet Phil’s” Budget and it’s effects for our small business clients.

Positives included no negative changes to pensions, £2bn more for social care and a delay in Making Tax Digital (MTD) for small self-employed businesses under the VAT threshold.

Negatives include the increase in Class 4 NICs from 9% to 11% by April 2019 and the reduction of the 0% dividend band from £5k to £2k.

Some of these points are further discussed in our Budget newsletter which can be read here –Tax-Newsletter-UK-March-2017.

If you wish to discuss anything from the budget then please drop us an email at info@mooreaccountancy.co.uk

 

Autumn Statement Update 2016

Business Matters_Steve Woods via Dreamstime

Business Matters_S Woods (Dreamtime)

It was Phil Hammond’s first Autumn Statement since becoming Chancellor and it will be his last, as the usual spring budget is moving to the autumn from 2017.

There was lots of talk about productivity and where our gross debt is at present, but for you – our small business and individual clients, here are Moore Accountancy’s main highlights:

Increase in Personal Allowance (PA) and Higher Rate Tax (HRT) threshold

For 2016/17, the PA is £11,000 and the HRT is currently for income levels over £43,000.

Next year (2017/18) this shall rise to £11,500 and £45,000 and the eventual aim is to ensure that the PA increases to £12,500 and the HRT to £50,000 by 2020. After this point the PA is planned to rise in line with the Consumer Price Index.

An increase to these allowances is always good news for both individuals and small business owners.

 

National Living Wage

This was introduced last year and is separate to the National Minimum Wage. This will go up from £7.20ph to £7.50p from April 2017. Read our previous article about the differences between the two.

This is a positive thing for the country and should boost the flow of cash in the economy, although it will be an added burden for micro businesses.

Salary Sacrifice Schemes to be removed

From April 2017, any salary sacrifice schemes (aside from schemes relating to pensions, cycle to work, low emission cars and childcare) will be abolished. These include gym memberships, school fees, private health insurance, accommodation, company cars and car parking.

This does not affect many of our owner managed businesses, but if you are an employee of a large organisation, then we suggest you take up salary sacrifice schemes before April 2017 and benefit for a further year of reduced NIC and tax. After April 2018 these will no longer be protected.

 

Savings

Those individuals who have been prudent over the years and saved their pennies have been hit hard over the last couple of years with interest rates at a record low.

The government will be launching a new National Savings & Investment bond which allows savers to save up to £3000 over a 3 year period. It aims to offer a market leading rate. It should be launched in the spring.

In addition to this, those savers who are basic rate with more than £1,000 worth of gross interest, or higher rate with more than £500 worth of interest should continue to look at utilising ISAs. The threshold has been increased to £20,000 per annum effective from 6/4/17.

 

Corporation Tax rates

The chancellor confirmed that he would not change George Osborne’s plans to reduce Corporation Tax from the current rate of 20% to 19% (from 1/4/17) down to 17% (from 1/4/20). This is welcome news for all businesses in the UK as it shows that the Government’s plan to have the lowest tax rate in the G20 is still on the agenda.

 

VAT changes

Many small businesses have been using the Flat Rate Scheme (FRS) as a simplified way of accounting for their VAT liabilities each quarter.

Unfortunately from 1/4/17 a new VAT rate of 16.5% will be introduced for many labour only businesses who have limited costs (to be known as a “limited cost trader”) and we understand that this will supercede any existing rates which may have been used by existing VAT registered businesses.

The details have not yet been finalised but we believe that a trader whose VAT inclusive expenses on goods (not services) are < 2% of their VAT inclusive turnover or <£1,000 will fall into this category. Note that the expenses used in the calculation will also exclude: capital expenditure, food and drink consumed by the business and vehicle and fuel expenses.

This will affect many of our smaller VAT registered clients, so please ensure you contact us to discuss this further for your specific situation.

 

Making Tax Digital

This is the Government’s current plans to move all small businesses and Landlords to a quarterly reporting and filing regime and away from the current once a year filing.

Many bodies, including the ICAEW have contributed to the consultations which have taken place over the last few months to discuss what HMRC and the Government want from businesses and how they expect businesses to cope with the onerous requirements.

The Government intend to publish its response to these consultations in January 2017 and we shall of course update our clients as to what it will mean for you at that point.

 

More support for Research and Development (R&D) and finance for growing firms

The Government plan to provide a further £400m boost for venture capital funds.

They may also review the tax position of companies who undertake R&D in order to make the UK more competitive in this area.

Many companies may be eligible for R&D tax relief, and whilst this is not a speciality of Moore Accountancy, we have contacts we can pass you on to for further guidance, so please get in touch if you think you may benefit.

 

Letting agent fees

These have been banned which is a cash flow benefit for many renters as it will reduce any up-front costs required when taking out a tenancy.

For landlords however, agreements with agencies should be reviewed to see whether the costs will now be passed onto landlords instead. It will therefore be necessary for landlords who use agents to review their income and costs to ensure they are not disadvantaged significantly.

If you wish for a more thorough review then please read our newsletter update.

Please contact Sid at Moore Accountancy (info@mooreaccountancy.co.uk) if you think any of the above changes will affect you and we can arrange a call or meeting to discuss any tax implications.

Dividend tax for small business owners

The changes effective from 6/4/16 to dividends have adversely affected almost every company business owner.Tax magnifying glass

There is now a new nil rate which applies to the first £5,000 of a person’s dividend income each tax year.

UK residents will now pay tax on any dividends received over the £5,000 allowance at the following rates:
7.5% on dividend income within the basic rate band;
32.5% on dividend income within the higher rate band; and
38.1% on dividend income within the additional rate band.
Dividends received on shares held in an Individual Savings Account (ISA) and pension funds continue to be tax free.

Individuals in receipt of dividend income who will fall into the self-assessment regime for the first time, will need to notify HMRC accordingly. Self-Assessment returns for the 2016-17 tax year need to be submitted by 31 January 2018.

The introduction of the new allowance was designed to help the Government with its plan to reduce the corporation tax rate over the coming years from its current rate of 20% to 17% by 2020 and to avoid tax based incorporations.

The overall idea is that only those with significant dividend income, or those who are able to pay themselves dividends in place of wages, will pay more tax. It is estimated that around one million individuals will pay less tax on their dividend income due to the new dividend allowance. These are likely to be individuals with modest share ownership.

In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.

Worked example 1 – low salary, higher dividend

Non Savings Savings Dividend Total
Salary 8,000  8,000
Interest   500     500
Dividend 41,000 41,000
Personal Allowance (8,000) NIL (3,000)
Total income        49,500
Taxable  NIL   500 38,000
PSA (500 @ 0%) NIL
BR ( 5,000@ 0%) NIL
BR ( 27,000 @ 7.5%) 2,025
HR ( 6,000 @ 32.5%) 1,950
Total Personal Tax    3,975

Worked example 2 – high salary, lower dividends

Non Savings Savings Dividend Total
Salary 40,000 40,000
Interest 500     500
Dividend 9,000   9,000
Personal Allowance (11,000) NIL NIL
Total income        49,500
Taxable  29,000  9,000
PSA (500 @ 0%) NIL
BR ( 29,000@ 20%)  5,800
BR ( 3,000@ 0%) NIL
HR ( 2,000@ 0%) NIL
HR ( 4,000 @ 32.5%) 1,300
Total Personal Tax       7,100

More HMRC worked examples are available here.

Note that there are other tax implications such as employees and employers NIC on salary, as well as the corporation tax charge of 20% prior to any dividends taken from the company, so please ensure you take advice before extracting funds from your limited company business.

Moore Accountancy can help with providing advice to owner managed businesses. Contact us on 07542299247 or at info@mooreaccountancy.co.uk

Residential landlord? Read up on the changes

Many of our Moore Accountancy clients are buy to let landlords.

Some have become landlords due to circumstances (aka Accidental Landlords) where properties are being rented as they have been unable to sell or have been inherited; whilst others are intentional landlords who are purposely investing in bricks and mortar for further annual income or as an alternative pension fund.

Recently there have been a number of changes to the tax rules relating to what expenses are allowable for buy-to-let landlords when furnishing and repairing a property. It is therefore important to be aware of what can and cannot be claimed so that you don’t lose out.

Old Allowances

Previously, buy-to-let landlords had been able to opt for either a “wear and tear allowance” or, by HMRC concession, the “renewals basis” and this would depend on whether the property was fully furnished or part/unfurnished.

Wear and Tear Allowance

The landlord claimed 10% of the rent as a deduction to cover the cost of replacement of items in the property. This was only available for properties let fully furnished though.

Renewals Basis

The landlord would be allowed a deduction for replacement items of furniture. The initial purchase cost was however not allowed. This relief was available on all properties and was therefore beneficial where a property was not rented as fully furnished.

After 6/4/13 this was removed but landlords could still claim a deduction for replacement ‘tools’. . These could include cutlery, crockery, bedding, bed linen etc. but not carpets, sofas, beds or free-standing ‘white goods’.

New Allowances

From 6/4/16, both the 10% wear and tear allowance and the renewals allowance was replaced by a new relief which allows all landlords to deduct the costs of replacing furnishings in a property. The relief will still not be available for the initial cost of furnishing the property (similar to the old renewals basis).

The new relief will cover the costs of replacing items such as:

• Moveable furniture and furnishings e.g. beds and sofas
• Fridges, freezers, freestanding cookers
• Carpets and floor coverings
• Crockery and cutlery
• Curtains and bed linen

Replacement of integral fixtures (ie items which are not normally removed by the owner when the property is sold) are not included. These would include fitted kitchen units, boilers and baths. Note it may be possible to class the replacement cost of such items as a deductible expenses (as a repair to the property directly).

General repairs such as painting and redecoration will still be allowed as a deduction from rental profits, as will replacement of double glazing windows and doors to a property.

These changes will primarily affect landlords who generally have low repairs and maintenance costs. They will have previously had the benefit of the 10% wear and tear allowance but now will have a much lower level of expense to declare and this may increase their tax liabilities.

There are also further changes to the interest allowable on residential properties, which will be covered by a separate blog post.

If you want to discuss anything further then please get in touch with Moore Accountancy via email (info@mooreaccountancy.co.uk) or phone (07542 299 247).

Emergency Budget – July 2015 Moore Accountancy Top 10 Points

There have been many changes in George Osborne’s “Emergency Budget” today, 8/7/15, many of which we at Moore Accountancy did not expect.
Below are our top 10 things to consider for small businesses and Individuals:

PERSONAL ALLOWANCE INCREASES
Individual’s personal allowances will increase from £10,600 to £11,000 in April 2016. Moore Accountancy had been expecting a rise of £200 to £10,800. It does bring things in line with the planned £12,500 allowance by 2020.
The level at which higher rate kicks in has also increased more than expected from a current £42,385 to £43,000 next year. Hopes are that £50,000 will be the eventual threshold but no timescales have yet been provided for this.

LIVING WAGE INTRODUCED
From April 2016 a new living wage will be introduced for employees aged 25 and over. This will be at £7.20 (versus current minimum wage of £6.50). By 2020 it is set to reach £9ph. Whilst this is great news for low income earners, small businesses may have to evaluate their costs and it may restrict the ability for SMEs to expand.

MORTGAGE RELIEF FOR BUY TO LET LANDLORDS
Moore Accountancy has numerous clients who have rental property portfolios and this change is bad news for many of them.
At present, finance costs, such as mortgage interest, are fully tax deductible against rental profits. But from tax year 2017/18 this will begin to be limited for higher rate tax payers.
The proposal is that income will be taxed at your marginal rate, but whereas the mortgage expense is currently also expensed at the marginal rate, in the future they will be restricted to the basic rate of 20%.
Our clients will need to evaluate their portfolios and if highly geared, may be less likely to meet mortgage liabilities.
Further changes were made to the wear and tear allowance that landlords of furnished property can claim. From 6/4/16, this will be withdrawn, to be replaced by a tax deduction when the expense is incurred.

PENSIONS FOR ADDITIONAL RATE TAX PAYERS
As expected, George Osborne has put a restriction on pension tax relief for individuals earning over £150,000 of £10,000 compared to the £40,000 currently in place.

TAXES ON DIVIDENDS
At present, dividends is the most tax efficient way of taking funds from a company, especially for many of Moore Accountancy contractors and one person companies. If you are a basic rate taxpayer, then there is no further tax to pay. Even if you are a higher rate, you only pay a marginal rate of 32.5%.
From 6/4/16, the first £5,000 of dividend income is tax free but anything above this will be taxed at 7.5%, 32.5% or 38.1% depending on your tax bracket.
This means shareholders of owner managed companies will be paying a lot more tax going forward and it may be in their best interests to bring forward dividend payments into the current tax year.

CORPORATION TAX RATES
These have come down over recent years to 20% for all companies. Surprisingly, further cuts in the tax rate will take place from 1/4/17 with the rate dropping to 19%. From 1/4/20 the rate will drop further to 18%.
This is good for UK businesses and also for encouraging overseas investment in the UK

ANNUAL INVESTMENT ALLOWANCE (AIA)
This allowance allows businesses to claim 100% of the cost of qualifying plant and machinery in the year of purchase.
It had been indicated that it would reduce from the current rate of £500,000 to £25,000 but George Osborne announced today it would be set at a new level of £200,000 from 1/1/16.

EMPLOYERS’ ALLOWANCE
Currently all employers running a PAYE scheme receive a £2,000 allowance to offset their employer Class 1 NIC liabilities.
This is increasing by 50% to £3,000 from 6/4/16. However this will be withdrawn from companies with one director/employee. This is not good news for many of Moore Accountancy owner managed businesses. Further information as to how this will be recorded is still to come.

INHERITANCE TAX – MAIN RESIDENCE
This had been publicised already by the Conservative government.
Currently everyone has a £325,000 nil rate band after which Inheritance tax (IHT) is payable. The new relief adds a further £100,000 (from 6/4/17) up to £175,000 by (6/4/20) to the IHT exemption level to be used against a residential property.
By 2020, everyone will have £500,000 or £1 million for couples.
There are further tweaks in place, such as if someone downsizes and a reduction in relief for estates exceeding £2million but for the majority of people, this is a welcome relief.

BENEFITS
Proposals will affect many people in the UK.
Tax credit (and the new Universal credit) will be restricted for families with more than 2 children; only affecting those born after April 2017.
Many benefits will be frozen for the next four years, but maternity pay and disability benefits should be exempt from this.
Local Authority/Housing Association tenants who earn more than £30,000 will lose their subsidised housing. They will have to start paying the market rate for their property. The income level will be £40,000 for those in London.
Young people will no longer be able to automatically claim housing benefit. There will be a new “earn to learn” scheme put in place.

This budget had lots to give, but lots to take away too.
Many of the changes have different implications depending on your personal and business situation and if you would like further advice to discuss any of these with Moore Accountancy, then please contact us at info@mooreaccountancy.co.uk , on 07542 299 247 or via twitter at @sidmooremanc

UK Budget 2015 – Moore Accountancy’s Top 10 Highlights

Today’s Budget was always going to have significant political influences with the General Election a couple of months away; but despite that, there were some useful changes brought in by George Osbourne.

Budget 2015 Scrabble image

Photo by LendingMemo.com

Here are Moore Accountancy’s Top 10 Highlights (in no particular order!)

  1. Basic rate savers will receive the first £1,000 interest earned tax free. This is up to £500 for higher rate tax payers – effective April 2016.
  2. Creation of a new “Help to Buy” ISA for first time buyers. You can save up to £200 pcm towards your first home. The government will boost it by 25%, so if you save £200, the government will top up by £50, up to a maximum of £3,000.
  3. New Flexible ISA – This will enable individuals to withdraw money out of their ISA and put it back (in the same tax year) without losing tax free status.The current ISA limit is £15,240 pa in 2015/16.
  4. Personal Tax free allowance for individuals will be £10,600 for 2015/16, rises to £10,800 in 2016/17 and up to £11,000 by 2017/18. This is combined with increases to the higher rate threshold, which will start at £42,385 in April 2015, increase to £42,700 in 2016/17 and up to £43,300 in 2017/18.
  5. Minimum wage will rise to £6.70 in October 2015 for adults with the biggest increase for apprentices who will be earning £3.30 (up from current rate of £2.73)
  6. Fuel duty increase has been cancelled, which means that it has been frozen for 5 years. This will help motorists, but it is important to ensure that the government is still focusing on UK public transport too. The Budget did announce a new transport strategy for the North to help create a “Northern Powerhouse”.
  7. Pensions lifetime allowance will be cut from £1.25m to £1m from April 2016, but from 2018 this level will be index linked to protect existing pension pots.
  8. From April 2016, annuity owners will be able to sell on their annuity and pay their usual rate of income tax instead of the current 55%. This will enable more flexibility for pensioners and follows both last year’s Budget and the Autumn Statement 2014 which began the process of “giving more freedom to pensioners to spend their pension cash as they please”.
  9. Annual paper tax returns to be abolished. Details will be uploaded automatically online. The devil will be in the detail, as we are not sure yet if this will mean more work for small businesses who may have to file monthly or quarterly instead of annually.
  10. Business rates receipts devolved to Manchester, meaning the area will retain 100% of business rates raised.

There are a number of other changes including gift aid for Charities and corporation tax for companies, but these were our favourites. Get in touch with Moore Accountancy at info@mooreaccountancy.co.uk or on 07542 299 247 if you want to find out more information as to how the Budget 2015 will affect you or your business.

And for those who wish to have some bedtime reading with the details of the above then please find the official link to the 124 page Budget 2015 document here.

Tax returns tips

Self assessment tax returns

We recently featured on a blog where we answered a few questions about self-assessment expense claims for landlords. As we approach the deadline for tax return filing we thought we should share a few tips with you.

Don’t leave your tax returns filing to the last minute

HMRC has been sending reminders to taxpayers to file their self-assessment returns. Like many taxpayers you might get tempted to leave it until after Christmas but the sooner you submit it the sooner you will get your refund (if due) and the earlier you will know how much tax to pay on 31/1/15 (if you owe tax to HMRC).

Don’t pay your tax bill late

Don't leave it for later

You will get charged interest and possibly late payment fees if you pay your tax bill late. Once you have filed your tax return and calculated your tax liabilities; you can start saving for your tax bill and managing your cash flow. Remember, you can file your tax return early, but have the benefit of only having to pay any tax liability by the normal due date of 31/01/15.

Take your time with tax planning

There are various options to consider which could minimise your tax liabilities. Tax liability can arise for example, from your earnings, your profit from trade, or from selling chargeable assets. Contact Moore Accountancy for professional advice on tax savings.  For example it may be beneficial to employ your spouse in your business or consider forward planning by setting up an employer pension scheme.

Seek professional advice

As mentioned there are different allowances available for you and your business to maximise tax saving. You could however get confused attempting to interpret the extensive UK tax legislation.

For instance, if you are using one of the rooms in your house as an office you may be able to claim (income or corporation) tax relief, but you need to also know about the possible capital gains tax liability you could incur if you were to sell your house later.

To ensure you pay the tax due and nothing more, contact us for personal and professional advice.

Moore Accountancy Blog: Child Benefit – what you need to know about the changes

What you need to know about the change in child benefit and Moore Accountancy’s tax planning tips

In 2012 the Government announced its decision to withdraw child benefit for the higher-income households. As of 7thJanuary 2013 about 1.2 million families have had their child benefit either reduced or cut.

HOW DOES IN WORK?

If you are a parent with a child under 16 or under 20 in certain cases (staying in approved education or training) you are entitled to child benefit. Child benefit is basically a tax-free payment from the Government to help you cope with the cost of raising your children. You get £20.50/week for your eldest child and £13.55/week for each of your other children (rates fixed until April 2015).

But since the beginning of 2013, if you and/or your partner earn more than £ 50,000 (all taxable income) you will not be entitled to the total amount of child benefit. And if you earn £60,000 you lose the right to claim the benefit.

WHAT HAS CHANGED?

The government has introduced the “high income child benefit tax”. If you are affected by the change you should have filled a self-assessment form which specifies whether you or your partner are earning above the threshold and claiming child benefit. In that case 1% of every £100 earned over £50,000 is repaid. In the case where you and your partner both earn above £50,000 this will only apply to the highest income.  If one of you is earning £60,000 (after pension contributions and gift aid) the full amount of child benefit is repaid.

You can work out the child benefit you are entitled to and your tax charge using HMRC Child benefit tax calculator.

You can also choose not to claim child benefit in which case you are exempted from filling in a self-assessment form. However you can still fill in a Child benefit claim form to get National Insurance Credit which counts toward State Pension.

Child benefit changes in a nutshell

OTHER CHANGES

This year child benefit has not increased with inflation for 2014/15 as the government has frozen the amount as at the 2013-2014 rates. It is planned to rise by 1% over the next two years.

TAX PLANNING TIPSFamily: child benefit

  • If your income varies (due to commission and bonuses), it may be worth still claiming the child benefit but saving it in a different account in case you have to repay it.
  • It is worth assessing your pension contributions and gift aid before the end of the tax year to see if you can come under the £50,000 taxable income threshold
  • If you are self-employed then you may have more flexibility in assessing your total income.

Contact Moore Accountancy to discuss how we can help you and your business.

Budget 2014 – Highlights

piggy bank

Yesterday, George Osborne announced his 5th annual budget, hailed as a savers BUDGET; here are some of the highlights.

Whilst there is not much for micro and small businesses, we have been urged to “export more, build more, invest more and manufacture more”.

Business in enterprise zones (of which nearby is Manchester Airport City Enterprise Zone) will see their business rates discounted. Furthermore, business rates will continue to be cut or held with small company relief being extended to April 2015.

The Annual Investment Allowance has been increased to £500,000, great news for those companies that are looking to invest in new plant and machinery as they can now receive 100% tax relief on the qualifying expenditure. This will result in nearly every business in the UK paying no upfront tax when they invest in the future.

The Chancellor made a pre-announcement about the new NIC Employment allowance of £2,000 which starts in April 2014. This will remove the first £2,000 for employer’s NIC bill for every UK business. Furthermore, from 2015 there will be no employer national insurance for under 21s (unless they earn the upper earnings limit).

Class 2 NIC collections for self-employed will move into self-assessment (currently £2.75 pw) from April 2016.

Research and Development tax credit for loss-making small businesses from 11% to 14.5%.

For those of us that work within a social enterprise framework, you are now entitled to 30% Tax Relief. And if you work within the film industry, the film tax credit has been extended.

Company car tax to increase by 2% in 2017/2019 and 2018/2019 however the discount on low emission cars is to be increased.

Personal allowance has been raised to £10,000, increasing further to £10,500 next year, resulting in the average tax payer £800 pa better off. Furthermore, the higher rate threshold will rise to £41,865 next month then by a further 1% to £42,285 next year.

The annual limit for ISA’s is set to be raised to £15,000 pa, with Junior ISA’s raising to £4,000. This means that you could potentially save up to £19,000 pa tax free from July 2014.

Further tax free investments can be made in Premium Bonds increasing the amount you can invest from £30,000 to £40,000 in June, and to £50,000 next year.

The 10% tax on savings (for those earning less than £13,000) is to be scrapped being replaced with 0% on savings up to £5,000 – benefiting pensioners and stay at home parents.

Tax restrictions on access to pension pots to be removed, resulting in no requirement to buy an annuity. This will mean that you can chose to take your money when you want it and pay the marginal rate of income tax.

In another step to help us keep the money that we have worked hard for, the increase in total pension savings that pensioners can take as a lump sum has been raised to £30,000 (from £18,000). This will give more flexibility to retirees.

Furthermore, a new pensioner bond will be available from January 2015, supplied by NS&I with market leading rates for over 65s.

If you are in the unfortunate position of being accused of using a tax avoidance scheme and are now appealing, tax liabilities are now due up front whilst appealing, rather than collected after the decision has been made.

The economy is expected to grow by 2.7 % in 2014, higher than originally expected and whilst the Chancellor has promised “no quick fixes” he has forecasted “jobs up, growth up and defecit down”.

These are the highlights that we feel are of interest to you, should you feel that there is anything that you would like to discuss further then please do not hesitate to contact us on 07542 299247 or email us at info@mooreaccountancy.co.uk

I hope you’ve found this interesting, if you like a tipple can I suggest Scotch Whiskey or Cider, both of which have seen their duties frozen!

Christmas Entertaining

baubles

At this time of year, we are often asked whether Christmas parties are tax deductible or not?

Unfortunately, as with anything to do with tax the answer is not the same for everyone!

If you are a sole trader or in a partnership then the simple answer is no.

Legally, you are the business and you can’t entertain yourself. You also need to eat to live and whether you eat in a Manchester restaurant or at home, it is your choice – the cost would count as drawings if you tried to put it through the accounts.

If you have any employees then the exemption described below can be used for them, but not for you.

Limited Companies

If you are a director of a limited company, however, you can claim an exemption to cover the cost of an annual function of up to £150 per employee per annum.

This could be split over a summer event and a winter one but they should be annual and the cumulative cost of both must be below £150 for it to be allowable.

Usually a Christmas (or summer) party would be classed as a benefit in kind and would be taxable on the employee (like company cars) but if the following is met there is not issue:

  • Must be annual event
  • All employees must be invited
  • Total cost (Inc. VAT) must not exceed £150 per guest. If it is £152 the whole amount will be chargeable as a benefit in kind

A way around this is to get a contribution from employees on the excess and just claim the £150 per head.

Entertaining clients and subcontractors

You can’t claim tax relief on entertaining anyone who is not an employee or guest of an employee. So any such expenses will be classed as business entertaining and you will not reduce the amount of profit and hence tax that needs to be paid.

Networking at Christmas

This is a grey area regarding whether it is just eating lunch and hence something that would “normally have been done at that time” (i.e. going out with a group of friends), or whether the main purpose and intention is for finding new business connections and having the opportunity to learn about other businesses and potential leads, then they are potentially allowable.

The intention is the key to deciding whether the expense is deductible or not.

Gifts to client

You can make a gift to a client up to £50 in any tax year.

There are some limits to allow it to be tax deductible – if not met it will be classed as entertaining

  • Must be business related (i.e. calendar, pens)
  • Cannot be alcoholic drink, food or tobacco
  • It must clearly show your business name (advertising)

Gifts to staff

All gifts are benefits in kind unless they are “trivial”.

These can be a bottle of wine, box of chocolates or a turkey, but not a case of wine or  hamper for example.

Any Christmas bonuses must go through payroll system as normal.

We did say that it was not straight forward, if you have any questions at all then please do not hesitate to contact us, our office is closed from Friday 20th December, reopening Monday 7th January.

We hope you all have a good Christmas and we look forward to working with you in 2014.