With Christmas fast approaching and ever increasing relaxations around Covid, many Employees and Employers are hoping for a Christmas Party this year. This year, like last has been difficult for many and the opportunity to now go out and meet with colleagues in person, socialise outside work and make to the most of the reduction in Covid restrictions means many businesses will be planning a party/ event for staff in or around Christmas.
If a staff party is on your agenda, the tax implications will be the last thing you think of – but if you get them wrong they will be costly to you and potentially your employees. Any goodwill generated by the Christmas party would surely be lost if Employees then faced a tax bill for the privilege.
Provided the party/ function is an annual event then it will qualify as a tax-free benefit for employees provided it is open to all your employees, not just the directors, and all events in the year cost less than £150 per person (including VAT).
The cost of the whole event will be an allowable expense for your business and you can reclaim input VAT incurred on the costs.
The £150 per person should cover any costs related to that function such as food, drink, transport and overnight accommodation, if you go over the £150, even by as little as £1, then none of it is exempt – so we can’t party too hard!
If you hold more than one annual event in the year, all events will be exempt if the combined costs do not exceed the £150 and they are made available to all staff – otherwise you may need to choose an event to be covered by the Annual exemption where costs are below £150 per head, and the other events will be a taxable benefit for your employees.
In addition to the Christmas party, many employers will be considering making gifts to their staff. The tax treatment of gifts will depend on who will be receiving it – employees or customers.
A Christmas bonus for staff i.e. cash – is treated in the normal way and will be subject to tax and national insurance.
Gifts to employees such as hampers should be tax free for an employee provided that they fall within the ‘trivial benefit’ exemption. The exemption provides for an exemption from income tax for trivial benefits where the following conditions are met:
- The cost of the benefit does not exceed £50, including VAT;
- It is not cash or a cash voucher;
- It is not provided in recognition of past or future services performed by the employee in the course of their employment; and
- The employee is not entitled to the benefit as part of a contractual agreement (including salary sacrifice).
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 for goods as long as they do not exceed £250, without being taxable. 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/logo of the business and does not include food, drink or tobacco.
Still apprehensive about the tax implications of Christmas festivities? Contact Angela Keery or another member of the tax team on 028 9032 3466 to find out more.