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

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:

• Plan in advance the use of the ticket or debentures and adopt the correct treatment from the start
• Maintain proper records of the events to ensure you can calculate any VAT, income tax or corporation tax due
• Be prepared for any PAYE or VAT inspection to request these supporting records
• Don’t forget to invite your local friendly accountant to a game or two!  (Only joking!)