Deposits, Christmas Parties, employee gifts and VAT

Tis the season, and we know that many employers and employees have been excitedly preparing for their Christmas parties. Sadly, for many, we are hearing that disappointment ‘strikes’ again, following the recently announced train strikes, affecting many whose Christmas parties fall on those days, and where their only means of travelling to their area of work, is by train. We have spoken to clients and contacts across London and the UK, who face another cancelled party (given the number that were cancelled for the same reason in December 2022). The announcement of train strikes, for many, has come after cancellation policy deadlines for their Christmas parties have passed, so deposits have been lost, and once again, businesses (and of course the hospitality sector for having empty venues) are out of pocket.

When planning our own events schedule here at Gravita, when we look round a venue, the discussion around deposits has now moved up far higher on our events check list; recent years have made us a little more wary. A deposit, or advance payment, is a proportion of the agreed price of the good or service you are buying, so in this case, the cost of the venue, catering and so on, and therefore in this example, a substantial amount. HMRC announced that from 1 March 2019, VAT continues to be applicable on deposits, which is certainly helpful to the hospitality sector, an industry which encounters a huge amount of no shows and cancellations.

When planning your Christmas party, or any other event throughout the year, do remember to make room for VAT on the deposit within your budgeting process. As with any deposit, there is a point at which the cancellation policy states that the deposit is non-refundable, and you will therefore also need to bear in mind the unfortunate reality, that if your event is cancelled for reasons out of your control, and after the point at which the deposit is fully (or even partly) refundable, you will lose not just your deposit, but potentially the VAT paid on that amount. If, however, you decide to cancel the goods or service for which you have paid a deposit and within the deadline that the deposit is fully refundable, you should automatically receive the VAT back, along with the payment.

Employee gifts

Don’t forget if you’re giving Christmas gifts to your employees, such as hampers and vouchers, there will be VAT implications, (and of course there is ‘benefit in kind’ to consider as well).  And of course, the more employees you have, the greater the VAT implications; we are working with clients at the moment to assist with navigating their way through this, so the outcome is both beneficial for employers, and most importantly, the employees.

What next?

If you have any questions, please speak to Sandy Cochrane, VAT Partner, who will be able to help.