Work Christmas parties and staff gifts: Don’t get a nasty present from the taxman!

Throwing a work Christmas party?

The good news is that, unlike entertaining customers, some of the costs of entertaining employees are generally allowable against the profits of the business.

What falls into an annual function or ‘Christmas Party’ allowance, as it is commonly known?

As long as everyone from an office, location or area is invited, up to £150 per person attending can be spent on parties and other social functions each year. This is not then liable for income tax as a benefit in kind for the employee and the input VAT can be reclaimed by the employer. The £150 is, unfortunately, inclusive of VAT.

What if you exceed the £150 per personal annual limit?

If you exceed the limit, then the full amount is taxable and must be reported as a benefit. Also beware, if the ‘event’ is deemed to be a reward, incentive or bonus the employer would not be able to reclaim the input VAT, on top of the employee being liable to tax as a benefit in kind.

Can I offset staff entertaining against corporation tax?

When it comes to corporation tax, staff entertaining, including retired members of staff and the partners of existing and past employees, is an allowable deduction. Furthermore, for owner managed businesses, paying from the company will typically be more efficient than extracting the money and paying yourself post-income tax.

Can I invite non-staff to our work party and claim a corporation tax deduction?

Client entertaining is generally not an allowable expense for corporation tax purposes and must be separately apportioned and accounted for. This means there isn’t a corporation tax deduction available for the costs of non-staff, friends or family attending a Christmas work party.

Giving a gift to employees this Christmas? Whether it’s a turkey, bottle of bubbly or gift vouchers, make sure it’s tax-free!

Some employers may wish to give a small gift to their employees. As long as the employer meets the relevant conditions, no tax charge will arise on the employee.

A tax exemption is available which should help employers ensure that trivial benefits provided are exempt and do not result in a reportable employee benefit in kind.

In order for the benefit to be exempt it must satisfy the following conditions:

• the cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees).
• the benefit is not cash or a cash voucher.
• the employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice).
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties.
• where the employer is a ‘close’ company (a limited company that’s run by 5 or fewer shareholders) and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.
• If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.

Keep it under £50 to make it tax-free

If the cost is above £50, the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. Where the individual cost for each employee cannot be established, an average can be used.

So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. You don’t need to pay tax or National Insurance or let HMRC know.

HMRC has provided examples such as turkeys, bottles of wine and gift vouchers which could be considered as trivial benefits, should they meet the criteria noted above.