24 January 2001
Replies to Queries – 2
The costs of Christmas
Many companies and firms authorise a significant amount of expenditure on the Christmas season. This can include office decorations and the sending of Christmas cards to clients, customers, suppliers and other business associates.
The treatment of Christmas parties and functions for staff is well known, and undoubtedly the provision of seasonal functions for clients and customers is business entertaining and comes within section 577, Taxes Act 1988.
The costs of Christmas
Many companies and firms authorise a significant amount of expenditure on the Christmas season. This can include office decorations and the sending of Christmas cards to clients, customers, suppliers and other business associates.
The treatment of Christmas parties and functions for staff is well known, and undoubtedly the provision of seasonal functions for clients and customers is business entertaining and comes within section 577, Taxes Act 1988.
Replies to Queries – 2
The costs of Christmas
Many companies and firms authorise a significant amount of expenditure on the Christmas season. This can include office decorations and the sending of Christmas cards to clients, customers, suppliers and other business associates.
The treatment of Christmas parties and functions for staff is well known, and undoubtedly the provision of seasonal functions for clients and customers is business entertaining and comes within section 577, Taxes Act 1988.
However, what about the costs of decorations and sending cards? Is this expenditure 'wholly and exclusively incurred', therefore within the provisions of section 74 (1)(a), Taxes Act 1988 and so claimable as a business expense under Schedule D, Case I or II? Or will it come under the scrutiny of Hector Scrooge, leading perhaps to a technical argument and the threat of an aspect or full Revenue Enquiry?
(Query T15,741) – Rudolph.
The potential deductibility of the Christmas cards and the cost of the decorations must be considered separately with reference to the facts pertaining to each item.
Christmas cards: The purpose of sending Christmas cards is to remind customers and suppliers of your business and so, although we hear much of the season of goodwill, cards sent to business contacts are no more than a commonly used marketing tool. On that basis, the cost will be fully deductible.
The only scenario in which this could be challenged would be if the invoice for Christmas cards paid by the business, included the cards for Great Aunt Flossie, a wealthy spinster from her loving nephew, and the rest of one's relatives. If the personal element of the expenditure could not be identified, the whole of the cost of the Christmas cards could be disallowed on the wholly and exclusively rule.
Decorations: The first issue to consider is where the decorations are hung. If they are in the reception area or other places where customers will see them, the expenditure is likely to be deductible. Where the decorations are hung in a staff only area, there could be a business motive in that the morale of the staff is heightened leading to increased productivity. However, Hector Scrooge might be horrified at the idea of employees enjoying themselves at work and consider that a pay-as-you-earn settlement agreement would be a useful means of taxing that 'benefit'. Hopefully, difficulties in placing a monetary value on that benefit and the small amount of tax involved should cause Hector to see reason and look for more fruitful areas.
In considering deductibility, the other issue is whether the decorations are revenue or capital. This was not considered in respect of the Christmas cards, as an item which will be in a bin by the following Twelfth Night at the latest will not be of enduring benefit.
An obvious example for consideration is an office Christmas tree. If the tree is a proper tree and not artificial, there will be no enduring benefit and so the cost will be fully deductible as a revenue expense in the year that the expenditure is incurred. However, artificial trees can be used for ten years and more, which means that rather than being a revenue expense, the tree would be an addition to the general pool for capital allowances. Similar considerations would apply in respect of the tree lights and other decorations. However, this position could be subject to review if shortly after purchasing it the artificial tree, and decorations, was crushed beneath the losing finalists of the impromptu tango competition organised at the end of a particularly rowdy office party.
For the other decorations the question of revenue versus capital will also be in point. If the business normally acquires expensive garlands from Harrods that are lovingly stored from year to year, capital treatment is likely to be appropriate. On the other hand, for a business that buys the decorations for £5 from a more downmarket establishment, revenue treatment might be better. – Hodgy.
Section 577(8)(b), Taxes Act 1988 allows a deduction for articles incorporating a conspicuous advertisement for the donor if the cost to him does not exceed £10, aggregating the cost of any other such articles given to the same person in the same year. As it is customary to send Christmas cards only once a year, with a cost unlikely to exceed £10 each, and featuring the sender's identity with great prominence, it does not seem that there can be a problem.
As regards the requirement in section 74(1)(a), Taxes Act 1988 that the expenditure be incurred wholly and exclusively for business, advertising by means of cards seems quite as effective as any other, indeed, rather more so, being directly targeted on the objects.
Decorations are not confined to paper chains. Some firms hire works of art, supplied on a monthly rotation basis, as a means of upgrading staff morale by providing civilised surroundings. Flowers in the reception area perform a similar function, as do seasonal artificial decorations.
The provision of accommodation, supplies or services to senior staff is exempted from charge under section 154, Taxes Act 1988 if used by the employee in performing the duties of his employment. Section 155ZA(2) of that Act says that, where the benefit is provided on premises occupied by the employer, the only (further) condition is that any use of the benefit for private purposes by the employee is insignificant. – Lane.
The costs of Christmas
Many companies and firms authorise a significant amount of expenditure on the Christmas season. This can include office decorations and the sending of Christmas cards to clients, customers, suppliers and other business associates.
The treatment of Christmas parties and functions for staff is well known, and undoubtedly the provision of seasonal functions for clients and customers is business entertaining and comes within section 577, Taxes Act 1988.
However, what about the costs of decorations and sending cards? Is this expenditure 'wholly and exclusively incurred', therefore within the provisions of section 74 (1)(a), Taxes Act 1988 and so claimable as a business expense under Schedule D, Case I or II? Or will it come under the scrutiny of Hector Scrooge, leading perhaps to a technical argument and the threat of an aspect or full Revenue Enquiry?
(Query T15,741) – Rudolph.
The potential deductibility of the Christmas cards and the cost of the decorations must be considered separately with reference to the facts pertaining to each item.
Christmas cards: The purpose of sending Christmas cards is to remind customers and suppliers of your business and so, although we hear much of the season of goodwill, cards sent to business contacts are no more than a commonly used marketing tool. On that basis, the cost will be fully deductible.
The only scenario in which this could be challenged would be if the invoice for Christmas cards paid by the business, included the cards for Great Aunt Flossie, a wealthy spinster from her loving nephew, and the rest of one's relatives. If the personal element of the expenditure could not be identified, the whole of the cost of the Christmas cards could be disallowed on the wholly and exclusively rule.
Decorations: The first issue to consider is where the decorations are hung. If they are in the reception area or other places where customers will see them, the expenditure is likely to be deductible. Where the decorations are hung in a staff only area, there could be a business motive in that the morale of the staff is heightened leading to increased productivity. However, Hector Scrooge might be horrified at the idea of employees enjoying themselves at work and consider that a pay-as-you-earn settlement agreement would be a useful means of taxing that 'benefit'. Hopefully, difficulties in placing a monetary value on that benefit and the small amount of tax involved should cause Hector to see reason and look for more fruitful areas.
In considering deductibility, the other issue is whether the decorations are revenue or capital. This was not considered in respect of the Christmas cards, as an item which will be in a bin by the following Twelfth Night at the latest will not be of enduring benefit.
An obvious example for consideration is an office Christmas tree. If the tree is a proper tree and not artificial, there will be no enduring benefit and so the cost will be fully deductible as a revenue expense in the year that the expenditure is incurred. However, artificial trees can be used for ten years and more, which means that rather than being a revenue expense, the tree would be an addition to the general pool for capital allowances. Similar considerations would apply in respect of the tree lights and other decorations. However, this position could be subject to review if shortly after purchasing it the artificial tree, and decorations, was crushed beneath the losing finalists of the impromptu tango competition organised at the end of a particularly rowdy office party.
For the other decorations the question of revenue versus capital will also be in point. If the business normally acquires expensive garlands from Harrods that are lovingly stored from year to year, capital treatment is likely to be appropriate. On the other hand, for a business that buys the decorations for £5 from a more downmarket establishment, revenue treatment might be better. – Hodgy.
Section 577(8)(b), Taxes Act 1988 allows a deduction for articles incorporating a conspicuous advertisement for the donor if the cost to him does not exceed £10, aggregating the cost of any other such articles given to the same person in the same year. As it is customary to send Christmas cards only once a year, with a cost unlikely to exceed £10 each, and featuring the sender's identity with great prominence, it does not seem that there can be a problem.
As regards the requirement in section 74(1)(a), Taxes Act 1988 that the expenditure be incurred wholly and exclusively for business, advertising by means of cards seems quite as effective as any other, indeed, rather more so, being directly targeted on the objects.
Decorations are not confined to paper chains. Some firms hire works of art, supplied on a monthly rotation basis, as a means of upgrading staff morale by providing civilised surroundings. Flowers in the reception area perform a similar function, as do seasonal artificial decorations.
The provision of accommodation, supplies or services to senior staff is exempted from charge under section 154, Taxes Act 1988 if used by the employee in performing the duties of his employment. Section 155ZA(2) of that Act says that, where the benefit is provided on premises occupied by the employer, the only (further) condition is that any use of the benefit for private purposes by the employee is insignificant. – Lane.