Tax Free Celebrations this Christmas
It's that time of year again. The tinsel is up, the songs are on and work's Christmas Party menu is being finalised. So, when it comes to your taxes, what can your business claim for and where can you save?
Part 1: The Party
Now, whilst there are no specific tax allowances for a "Christmas Party", there is some tax relief from HMRC against an annual party where certain conditions are met.
Beyond this, staff entertainment is considered to be a Benefit in Kind with employees being taxed on the 'benefits' they have received personally each year. Employers would also have to pay extra national insurance on any perks they provide to their staff.
The £150 limit.
The annual staff party must not exceed a £150 limit per head (including VAT) per year.
If the cost per head, per year, exceeds £150 then the whole cost is taxable as a benefit in kind and goes on your employees’ P11d. For example, if you calculate it to be £156 per head, then the whole £156 would be passed on to the P11d, not just the £6.
To calculate the cost of the benefit, simply add together the total cost of the function. This includes VAT, accommodation and transport provided to the guests. Then divide this by the number of staff and other guests in attendance.
The event must be open to all staff, or all staff at that location if you have several branches. Guests may be invited but the main reason for the event must be to entertain your employees. There is no relief if you run the event solely for directors. However, if the company is made up only of directors, there is an exception.
If you wish, you may hold multiple events throughout the year but the total claim must not exceed £150 per person per year. If your company has two parties where the combined cost exceeds this number, the £150 limit is offset against the most expensive one. Any others are fully taxable benefits.
Part 2: Gifting
So what about gifts? We all want to treat our staff to something special for their hard work this year. Well...
Trivial gifts for employees are not taxed as employment benefits and therefore won't go on a P11d and no tax or national insurance will be charged for the employer and employee.
Which begs the important questions: what's trivial? Think along the lines of a bunch of flowers, a box of chocolates or a meal out. They must be no more than £50, be in no way contractual and must not be cash or a cash voucher. It can be a gift card that can't be exchanged for cash, however!
So long as the benefits are not a reward for services such as hitting sales targets, there is no limit on the number of trivial benefits that an employer can provide for an employee.
For directors, there is an annual cap of £300 on exempt trivial benefits.
If you're looking to combine the annual party with your employee's gift, be careful. There have been cases of the tax inspector adding the gift into the annual party cost which could breach the £150 limit. To make sure this is avoided and to keep the two separate, give your gifts before or after the event.
For more information on gifting this Christmas including some very useful examples, take a look at this blog.
Contact us if you would like to discuss Christmas expenses in more detail. Give us a call on 01423 431889 or email firstname.lastname@example.org.