Tag Archives: christmas party

Treating your staff at Christmas

Another year is nearly at an end and many business owners’ thoughts will be on treating their staff at Christmas for the twelve months that have just passed.

In this article, Kelsall Steele looks at what you can spend on your staff this festive season without leaving yourself open for a bill from HMRC

Christmas party allowance

Your business can spend a tax-free amount of up to £150 per member of staff on your Christmas party or other similar events during the year. If the Christmas party is the only one you hold, it’s safe to assume that your £150 per head limit still applies.

Within your £150 per person, you can include food, drinks, accommodation, and transport home.

Be careful though because if you spend a single penny over the £150 limit, the whole amount you spend on the party will be subject to income tax and both forms of National Insurance.

If yours is a family company, this allowance is often used to provide everybody with an enjoyable tax- and NI-free family meal. If you don’t use up the £150 per head limit in one go with your family, you can add an additional event as long as the spending does not go above the threshold.

Trivial benefits exemption

You can provide a tax-free gift to staff at Christmas too (or at any other time of the year). This is called the trival benefits exemption.

The value of your gift can not exceed £50. Please note that any gifts provided will not be exempt if:

  • it is cash or a cash voucher
  • it is provided in recognition of an achievement performed by your employee as part of their duties
  • your staff member is due the benefit as a contractual obligation.

Many companies, in an attempt to foster closer relationships and greater loyalty with their staff, will use the trivial benefits exemption either on a staff member’s birthday or present the workforce with individual gifts prior to the Christmas party.

Long service awards

If you have any long-serving members of staff with more than 20 years’ continuous employment with you near Christmas (or at any other time of the year), you can gift up to £1,000 to them as a reward.

Your £1,000 gift can not be cash, cash vouchers, credit tokens, shares, or securities. It has to be a gift in the traditional sense of the word like a watch, a handbag, or a television set.

If you spend more than £1,000, only the amount over £1,000 is taxable.

Your employees accrue a £50 per year of service allowance for every 12 months they work for you (again, continuously). This can only be turned into a gift upon 20 years’ service.

If you intend to celebrate 21 long years of service, or some other measurement of time, please be aware that the money spent on the 20th anniversary awards is taken into account when calculating the amount available that is tax free for the later rewards.

Special treats for directors

During the year, you can take small amounts of profit from your business under the “trivial benefits” benefit-in-kind. Up to £300 a year is available with no more than £50 being spent on an individual treat. The amount you do spend is deductible for corporation tax purposes and the gift can not be in the form of cash or cash vouchers.

Treating your staff – know the rules

If you’d like to speak with the experienced Kelsall Steele team about rules on treating your staff at Christmas and at other times of the year, please call us on 01872 271 655 or email enquiries@kelsallsteele.co.uk

Christmas tax tips: Parties, bonuses and gifts

Christmas Tax Tips

Christmas is coming and it’s always nice to be a little generous to all those who have helped your business along over the past year. But the Taxman isn’t necessarily overflowing with Christmas cheer – so it’s worth being aware of some tax issues that could dampen enjoyment of the coming festive season.

Christmas Parties

The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. Although sole traders and partners of unincorporated businesses cannot claim for their own entertainment. As long as the ‘bit of a do’ meets a few conditions, there will be no chargeable taxable benefit for the employee:

  • It must be open to all employees, or to all at a particular location.
  • The cost per head must not exceed £150 (including VAT). If you have more than one function in a tax year the cost per head in total must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head – but it is the number of people attending that is important rather than the number invited so this should be borne in mind if you’re block booking.
  • If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending. Alternatively the business can enter into what is known as a PAYE Settlement Agreement to cover the employee’s tax for them. This would be payable by 19 October following the tax year – but this could be an expensive option as the extra tax and National Insurance Contributions you would pay could nearly double the cost of the party.

It is essential to remember that the cost per person is calculated as the total cost of the party or function so taxis home and any overnight accommodation have to be included in the calculation.

VAT

It’s important to note that on the amount of £150 per head VAT is recoverable on staff entertaining expenditure, but the definition of employees for VAT purposes does not include partners of existing staff, or former employees. Therefore if your party includes guests, you will need to apportion the costs appropriately for VAT.

Client Entertaining

Client entertaining (hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it. So if you invite customers to the Christmas ‘do’ you will need to consider how to apportion the costs between the staff and clients.

Business Gifts

Gifts to customers are only allowable as a tax deduction if:

  • The total cost of gifts to any one individual per annum does not exceed £50 and
  • The gift bears a conspicuous advert for the business and
  • The gift is not food, drink, tobacco or exchangeable vouchers.

However samples of a trader’s product are allowable even if they are food, drink or tobacco.

Christmas Bonus for staff

This will always count as ordinary earnings and must be subject to PAYE and NI as if it were additional salary. The same treatment extends to vouchers that can be spent in either one or a number of different shops of the employee’s choice. The employee has to pay tax on the full value of the voucher.

Gifts to Staff

With gifts other than cash or vouchers, in some cases the Taxman will decide that no tax liability arises on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. Unfortunately, HMRC will not tell us what monetary limit it considers as ‘trivial’. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial – although whether your employees will be quite so impressed by the “gift” is not clear!

On a cheerful note at least your turkey comes VAT free!!

For further information or guidance on any of these points you can contact Tax Manager Neil Brittain on 01872 271655 or email at neil.brittain@kelsallsteele.co.uk