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Topical Tips
102
September
2007 |
Staff
benefit or entertaining?
With the recent sale of debentures at Wembley
Stadium and similar season tickets at Premiership clubs, it is worth reviewing
the tax implications of businesses buying such things. The assumption is that
there will be a mixture of business entertaining and the provision of staff
benefits, as tickets or debentures are commonly used to reward or incentivise
employees. It is therefore important you follow the correct
procedure.
Rules of the
game
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So long as there will be a mixed use then you
should claim the VAT on the purchase of the ticket or debenture in next VAT
return for the business.
-
You must keep a log of the attendees of each event
and decide if the purpose was entertaining of business contacts (suppliers,
customers, etc.) or a staff benefit (employee of the month,
etc.).
-
On a quarterly basis (or monthly/annually if your
VAT period is different) you should account as output tax for the VAT on the
proportion of the cost that relates to entertaining. In order to do this
you should spread the cost of the economic life of the ticket or debenture (see
below for an example).
-
For corporation tax or income tax the entertaining
proportion is also disallowable as a deduction against profits so this should
be calculated annually from the attendee log and the correct apportionment made
in the tax calculation.
-
For the staff benefit you must remember to put the
benefit of the tickets/debenture on form P11D for the staff
concerned. Alternatively you could consider making a PAYE Settlement
Arrangement at the end of the tax year to avoid the staff being taxed and to
have the business pick up this bill.
-
If the intention for the ticket or debenture is
wholly entertaining then you should not claim the VAT up front. However, you
might not be able to predict this with accuracy so you could probably assume
there is mixed use and claim the VAT and follow the steps above.
-
Staff who attend an event in order to entertain the
clients who are present should not be treated as receiving a benefit for that
attendance as this is counted as entertaining.
Predict the
score
Say four season tickets at Arsenal cost £10,000, inclusive of
VAT. The economic life of the ticket will be the length of the football
season. You should count the number of months in the season (say nine) and
divide this into the cost, coming to £1,111 per month. If, for
example, the business is doing its VAT return for the three months to September
then this will overlap with approximately 1.5 months of the football season to
which the tickets relate. The VAT on this will be £1,111 x 1.5 x 7/47 =
£248. If 1/3 of the games attended were business entertaining then
1/3 x £248 = £83 should be declared as output tax on the 30
September VAT return.
A debenture will have a life in excess of
one season so the same calculation should be carried out as above, but the
economic life will be, say, 10 years.
Barnes Roffe
Topical Tips
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