Q: We would like to reward our staff with a Christmas party and gifts. As we are VAT registered, what would the VAT implications be for this?
A: If the gifts provided per employee do not exceed £50 (exclusive of VAT) within a 12-month period then you will not be required to declare the output VAT. You will however be entitled to reclaim the input VAT on the purchase of the gift and there are no restrictions on the type of gift purchased. If the total value of gifts bought within the 12-month period exceed £50, you will need to account for the output VAT on the total cost of the gifts. More details can be found in Public Notice 700/7: Business Promotions.
For the staff party, where entertainment is provided to employees as a means of reward or to maintain/improve staff morale, HMRC regard this a wholly business service and VAT incurred on the costs is fully recoverable. If the employees bring along guests that do not work for the company, the input VAT must be apportioned to reflect this. More information can be found at Public Notice 700/65: Business Entertainment.
In association with Croner Taxwise