It’s been another busy year for us all. From the after-effects of the pandemic to increasing costs and inflation, few will have escaped the challenges of 2022. Yet an important part of the business calendar is the Christmas party, which is a welcome opportunity to relax with colleagues and friends.
If a staff Christmas party is on your wish list, the tax implications will be the last thing you think of. Yet if you get them wrong, it may be costly to you and your employees. Poor management of this could result in your employees facing a tax bill for their own Christmas party, which will surely damage any goodwill generated by the gesture.
Provided the party or function is an annual event, it is a tax-free benefit for employees as long as it’s open to all, not just directors, and all annual events in the year cost less than £150 per person inclusive of VAT.
That figure should cover any costs related to the function, but unfortunately, we can’t party too hard, as this fails to apply at all if you go over the £150, even by as little as £1.
If this is met, the cost of the whole event will be an allowable expense for your business, and you can reclaim input VAT incurred on the costs. If you hold more than one annual event in the year, all are exempt if the combined costs do not exceed the £150 and are made available to all staff.
Where entertaining and gifts are a taxable benefit for employees, you as the employer may not want your employees to face the tax bill. In this case, a PAYE Settlement Agreement (PSA) in which you agree with HMRC to pay the tax/NIC on the employee’s behalf is an option here.
To help with rising costs, employers may consider making gifts to their staff. The tax treatment of gifts will depend on the nature of the gift and who receives it. Christmas bonuses are subject to tax and national insurance, whereas gifts such as hampers should be tax free if they fall under the term ‘trivial benefit’.
Trivial benefits are exempt from income tax and can be applied as long as the gift does not exceed £50, including VAT; is not cash or a cash voucher; is not provided in recognition of past or future services and is not part of an employee’s contractual agreement.
Where the employer is a ‘close’ company, and the benefit is provided to a Director, the total value of trivial benefits they can receive in a tax year cannot exceed £300.
In terms of gifts from third parties, such as suppliers or customers, employees can receive vouchers up to £250 without any tax obligations. Other conditions include that the gift really must be a gift and not provided in recognition for services rendered, and it can’t be employer provided.
While gifts to employees are tax deductible for a business, gifts provided to third parties are not an allowable expense, unless the cost does not exceed £50 (per person, per period), bears the name or logo of the business and does not include food, drink, or tobacco.
No matter your choice of celebration, showing your appreciation to your team is important, yet it must be done with the tax obligations in mind. Seeking business and tax advice beforehand is always the best approach.
To discuss any aspect in more detail please contact Angela Keery, Head of Tax E: angelakeery@bakertillymm.co.uk Tel: 028 9032 3466.