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A Christmas present from HMRC?

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10 December 2014

As Christmas is quickly approaching, your employees’ thoughts will be turning to the upcoming Christmas party and whether they will be receiving any other festive treats this year...

It’s always important to keep your staff happy, rewarding them for hard work done and incentivising them to do even better next year.  The question is then, how do you offer Dom Perignon, but for Cava costs to your business? Surprisingly, HMRC play a little bit of Santa in this situation – there are quite a few tax reliefs that you could take advantage of with their blessings.

The Christmas party

Repairs to the photocopier will normally be deductible should things get a little ‘lively’ but what about the party itself? As an annual event, the party is an allowable expense for you as the employer and is a tax free benefit for the employees so long as the following conditions are met:
  • The total cost, including transport and any incidental accommodation is no more than £150 (including VAT) per head. If the cost is just over £150 per head then the whole cost is subject to tax and NIC and not just the amount over £150; and
  • The party is open to all staff (or all staff at a particular location).

Photocopiers aside, employees’ partners can be invited to the party, but if partners are invited all staff must be entitled to bring a partner. The £150 limit per head is for all the people attending (not just the employees). It’s worth noting that unless you are on the Flat Rate VAT scheme you can only reclaim VAT on the costs relating to employees and not their partners. But be warned - the £150 exemption is based on the number of people attending the event. So if someone has accepted an invitation but does not actually attend it could cause a tax liability for all the party goers. Get someone with a clipboard to check who turns up!

A Christmas bonus or seasonal gift (or both!)

What about presents or bonuses? The latter is easy – cash bonuses are always taxable on the employees so either gross up what you give them or make sure they understand that HMRC will also be partaking in the Christmas bonus.

Perhaps more pleasant and certainly cheaper for employers are (certain) non cash gifts. They may crave Dom Perignon but Cava will please the Inspector more – ‘trivial’ gifts can include an ‘ordinary’ bottle of wine as stated in HMRC’s Guidance Manual. An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas without having to declare it as a benefit in kind. Of course, you can present them with a crate of caviar but there will be income tax to pay as a benefit. The good news is that you can claim a business expense in any case.

There are limits. If the gift extends beyond trivial, for example from a bottle or two to a case of wine the tax treatment may change. We can be your personal shoppers and help you pick the right gift.