Chartered Accountants of Poynton, Cheshire

Tax Tip

When you buy new equipment for your business, ask whether it is energy or water efficient.

Check the list on www.eca.gov.uk to see if you could get a 100% deduction fo the cost in the year of purchase.

On-line filing

Every year, employers are required to send details of the salaries, tax and National Insurance deducted from their employees.

These year-end returns have to be submitted by 19 May 2007 to avoid a fine. These documents can be submitted on-line via the internet.

We can assist you in this process. If you are a small employer (less than 50 employees) and you file on-line, HMRC will pay you £150 tax-free if you file on time for 2006/07.

Company Vans

There has been a big change to the taxable benefit due on vans.

Where an employer provides a van for an employee, which they can use for private journeys, the taxable benefit from 6 April 2007 becomes £3000 per annum.

This taxable benefit is not levied if the private use is merely incidental.

HMRC have given some guidance on what is incidental but this is not exhaustive so we will be pleased to advise on the situation if you are providing vans that can also be used for private journeys.

Useful sites

www.hmrc.gov.uk - H.M. Revenue and Customs

www.dti.gov.uk - Department for Trade and Industry

www.companies-house.gov.uk - company information

Putting it on expenses

Many businesses will incur entertaining expenses as part of their day-to-day running costs. Most such expenditure will include an element of VAT so the question is whether businesses can claim back that VAT on their VAT returns.

What is business entertainment?

According to HM Customs and Excise (HMCE), entertainment expenditure:

• includes an element of entertainment; and
• is provided free for people who are not employees (non-employees).

HMCE also states that entertainment costs could include any of the following:

• food and drink
• overnight accommodation
• theatre, concert or sporting tickets; and
• free use of assets such as yachts or villas.

It is impossible to give you a complete list of all the situations that you could meet. The important thing is to apply the rules to each situation.

Blocked VAT

Although there is VAT on the entertainment expenditure, HMCE will not allow traders to claim it back on their VAT returns, it is said to be blocked.

For example, if a solicitor and her client have a meal at a restaurant that costs £58.75 including VAT, the restaurant will have to pay the VAT element (£8.75) to HMCE on their next VAT return. The solicitor cannot claim that VAT back on her tax return because she was entertaining a client.

How does HMCE treat subsistence costs?

Subsistence expenditure is incurred when an employer pays an employee for their expenses while away from work on company business, such as going on a business trip or attending a meeting.

For example, if an employee is working away from home and has to stay overnight in a hotel, those subsistence costs will usually include VAT. The employer can normally claim back the VAT on the hotel and overnight costs.

The important points here are:

• that the expenditure is incurred solely by the employee carrying out their employer's business
• that there are no clients or customers present.

If the employee takes a client out for a meal while they are working away from home, that meal would be an entertainment expense. However, because a non-employee is present, the employer cannot claim back the VAT.

It is vital that businesses keep good records to show what expenditure was incurred and who attended each event (whether any non-employees were present).

We at Appletons have many years experience helping our clients make the most of their entitlements in this area.

If you need any advice on whether you can claim back VAT on any entertaining expenses, give us a call!

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