A few tax tips on Christmas parties and gifts to employees
Around this time of year, we are often asked what the tax implications are for office Christmas parties.
There are two elements to this; firstly, is the cost an allowable expense for business tax purposes, and secondly, is it considered a benefit for employees and taxable on them via their P11Ds? The good news is that the taxman is not completely “Bah Humbug” and will allow a Christmas party for employees. However, there are some limitations of which you need to be aware.
The general rule for business tax purposes is that the cost of staff entertaining is allowable for tax, as long as it is not incidental to the entertaining of others. Therefore, if you are inviting suppliers or customers, you will need to apportion the costs carefully between staff and supplier/customer entertaining, as the latter is not tax allowable.
For annual parties, such as the office Christmas party, again, it is generally not a benefit on the employees so long as the cost does not exceed £150.00 per head, per annum, inclusive of VAT. This £150 per head applies not only to staff, but also to their guests attending the function, as long as the guests are not customers or suppliers. It is important to note that if the whole cost of the party, including taxis and accommodation, goes even a penny over £150 per head, then the entire cost is taxable as benefit in kind on the staff who attend. Alternatively, tax can be paid by the employer through a PAYE settlement agreement.
In relation to gifts, tax must always be paid on cash gifts and vouchers provided to your employees as Christmas presents. Certain gifts however, can be treated as trivial benefits as long as the value does not exceed £50. So gifts such as chocolates, a bottle of wine or a turkey are likely to be trivial. However, a case of Champagne is likely to exceed the £50 limit and would be considered a benefit and taxable. Please note that for Directors of close companies, the limit for “trivial” benefits is extended to £300.
The good news is that there is no problem in claiming back VAT on staff entertaining such as Christmas parties (even if it exceeds the £150 limit per employee). However, to qualify, the event must be genuine staff entertaining and not an event where staff are attending to purely act as hosts for non-employees!
If you are interested in finding out more, or in doubt as to whether you can claim tax relief, please get in touch with our tax expert, Leanne Hickman.
01844 261 155