Christmas is now in a month's time and there is no doubt that last year's lacked celebrations, so it is only natural for thoughts to be turning to a an even bigger and better Christmas party this year, as well as any other festive gifts and treats that you may want to give your employees.
HMRC can play Father Christmas in this situation, providing you with some helpful tax reliefs that you could take advantage of, so that the practice and your employees can enjoy the festivities without being left with a surprise tax bill at the end!
The annual Christmas party
As an annual event, the Christmas party is an allowable expense for you as the employer and is a tax-free benefit for the employees so long as the below conditions are met:
- The total cost, including transport and any incidental accommodation, is no more than £150 (including VAT) per head; and
- The party is open to all staff (or all staff at a particular location).
Employees' partners can also be invited to the party but, if they are, 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 is 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.
One trap to be aware of is that the £150 exemption is based on the number of people actually attending the event. So, if you are at the top end of the allowance and you have a few last-minute dropouts which tips the cost to just over £150 per head, then the whole cost would be subject to tax and NIC and not just the amount in excess of the £150 cap.
If you are still unsure about a Christmas party this year, or you are feeling extra generous and would also like to give your employees a festive gift, then this can also be free of any tax implications in certain cases.
The gift cannot be too lavish as it must be classed as a ‘trivial benefit’ to be exempt from tax and NIC. Classic Christmas gifts such as a turkey, wine or chocolate would all be fine providing they do not exceed the specified limit of £50 each (including VAT). The gift cannot be cash or a cash voucher to qualify for the exemption, but a gift of high street vouchers is permissible.
Another trap to be aware of is that the gift must not be provided as a reward for the employee’s work or performance, nor should it be a contractual benefit, to be eligible as a trivial benefit. It should also be noted that if your preference is to give your employees a cash Christmas bonus, then this will always be taxable on the employee.
For more information, please contact a member of the team below.