With Christmas just around the corner, here at Ellacotts, we see a surge in VAT queries in relation to the festive period. Can VAT be recovered on business gifts? Are there any implications of donating goods to a charity? By a country mile, the most commonly asked question is…’Can a business reclaim input tax on Christmas parties?’.

For VAT purposes, a Christmas party would fall under the business entertainment rules. A celebration including all the staff and the directors/partners would enable a fully taxable business to reclaim input tax on costs incurred, for example, venue hire, catering – including alcohol and entertainment such as DJs and live bands.

There are some scenarios whereby any reclaim of input VAT would be restricted, these include:

  • Partially exempt businesses.
  • Where the party was solely for the directors of a company.
  • Attendees who aren’t employees e.g. family members or clients.

Another popular query is business gifts to staff, clients and suppliers. HMRC guidance states ‘a business gift is a gift of goods that is made in the course of promoting your business and for which you were entitled to reclaim the VAT you were charged on its purchase as input tax’. Business gifts can cover a wider range of goods, whether it be a bottle of wine, a Christmas hamper or something more elaborate, such as a watch.

VAT does not need to be accounted for on the cost of the goods gifted, so long as the net cost of the business gift to the same person does not exceed £50 in any 12-month period. If the total value of gifts to any one person within the annual limit does exceed £50, this results in a business having to account for output VAT on the cost value of all the gifts given to that person.

These rules can differ depending on the nature of the business, therefore, we would recommend that advice is sought prior to submitting a VAT return including these expenses.

If you would like more information or any advice on Christmas Parties, Gifts & VAT Recovery please contact our VAT Team at Ellacotts on 01295 250401 or email pmistry@ellacotts.co.uk. You can also contact us here with your query and we will get back to you.

This article may be of interest: Tax-free Christmas parties and staff gifts

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.