In order to attract a deduction in computing the profits of a trade or business, any expenses must be incurred wholly and exclusively for the purpose of the trade.
Capital expenditure is not an allowable expense (capital allowances are claimed on these costs), and certain other expenses are barred by statute.
However, there are a number of expenses which, while deductible, also enjoy relatively favourable tax treatment for the recipient employees.
If you find any of these of interest, please do discuss with us the detail of the arrangements as some are quite restrictive.
|Annual party costs
|Exempt amount per head for the year
|Long service awards
|Minimum term of service
|Value of gift
|£50 per year
|£50 per year
|Payment in relation to first year benefit
|Payment in relation to ongoing benefit
|Maximum period for ongoing benefit
|Household expenses contribution
|Relocation expenses paid to staff
|Minimum number of seats
|Limit per gift
|Sports facilities (Note 8)
|Corporation tax relief is available on contributions of up to £2,500 towards grassroots sports expenditure
- An annual Christmas party or similar annual event for staff is an allowable expense, and is not taxable on the staff attending provided the cost per head per year does not exceed £150 (including VAT). If this limit is exceeded, the whole benefit is taxable for the party or event where this limit was exceeded.
- This exemption does not apply to gifts of money. Subsequent awards must be more than 10 years after the last gift; the award is not taxable on the recipient.
- Either a payment may relate to the first year net financial benefit, or to ongoing net financial benefit, but not both. Various terms and conditions apply for the recipient to receive the payment tax free.
- The maximum amount is shared between the number of recipients for the same suggestion.
- Where employees work from home (including on an occasional basis) payments of up to the exempt amount in respect of additional household expenses are not taxable on them. If the employer chooses to make higher payments, they will be tax free if they do no more than reimburse reasonable additional costs incurred because the employee is working from home.
- Staff in receipt of tax free relocation packages must meet a number of stringent conditions.
- In order to be allowable the gift must have a conspicuous advert. The advertisement should be on the gift itself, and not just on the wrapping. The gifts may not be food, drink or tobacco (nor be a voucher to buy food, drink or tobacco), and the limit applies to all gifts to the same recipient in an accounting period. VAT is also recoverable on gifts, subject to this financial limit, but the restriction of food, tobacco and alcohol does not apply.
- Sports facilities made available to staff are not taxable on them as a benefit in kind provided certain conditions are met. The main condition is that the facilities are not also available to the public, so this prevents payment of sports club membership for staff. The exemption also cannot apply to the provision of cars, boats or aircraft and similar, nor to facilities on domestic premises.
- The provision of full-time childcare in a workplace nursery is tax-free on staff provided it is offered to all. Otherwise a contribution to the cost of care paid direct to the childcare provider under a contract with the employer, or through the provision of childcare vouchers is tax-free up to the weekly limit, but only where the employee joined the scheme by 3 October 2018. Again, detailed conditions apply to this exemption. This limit is reduced where an employee joined the scheme after 5 April 2012 and is not a basic-rate taxpayer on their earnings from that job for the year. It is £28 for employees who pay 40% tax, and £22 for new employees paying 45% tax. The tax-free provision of childcare vouchers was withdrawn for new entrants on 4 October 2018. Existing beneficiaries may continue to receive vouchers provided they continue to meet the conditions.
- Trivial benefits not exceeding £50 in value per item provided by the employer to the employee are exempt from tax. There are detailed rules governing the exemption, which is intended to cover items such as the provision of flu jabs, or flowers when an employee has been ill. This can also apply to birthday and Christmas gifts for employees. Retail gift vouchers have become a popular option under the trivial benefit rules. Where the employer is a director of a small company there is a further annual limit of £300 covering gifts to the director and members of his family or household.
- Pensions advice to the value of £500 can be provided tax free to the employee. It must be made available either to all employees, or all employees within five years of their retirement age.
- If an employer provides taxable benefits in kind to employees, these can be taxed through the payroll, removing the need to complete forms P11D after the end of the year. However, the decision to payroll benefits must be taken (and notified online) before the start of the new tax year, and remains in force for the whole year. Employers are free to choose which benefits they wish to include in the payroll and which employees will be included in the payrolling arrangements.