It’s that most wonderful time of the year, when Santa makes an appearance, vast quantities of mince pies are consumed and Home Alone is on TV. It’s also when tax advisors remind their clients about the Christmas party and gift rules. So not wishing to break from tradition here goes….
The cost of parties and staff functions for the tax year aren’t taxed as a benefit on the individual if the amount is less than £150 for each attendee. However, as with all things tax related and despite it being the season of goodwill, there are some things to be aware of:
- The £150 limit relates to VAT-inclusive costs, even where the employer can reclaim the VAT. It also includes incidental costs of the event, such as travel and accommodation;
- The limit relates to the number of actual attendees, not the number of people invited;
- They must be annual events, primarily for entertaining staff;
- All staff must be invited, not just directors unless all staff are directors; and
- The £150 limit applies to all of the company’s annual parties. If, for example, there are both summer and Christmas parties, the £150 limit has to cover both events.
If any of the above conditions aren’t met, the benefit is taxable on the individual. And if the cost per attendee exceeds £150, the full amount is taxable, not just the excess.
Christmas is also a time of year for giving! And generous employers can take advantage of the ‘trivial benefit-in-kind’ rules in order to make festive tax free gifts to their employees. A gift is considered trivial (and therefore exempt from Income tax and National Insurance) for both employer and employee provided that:
- The gift is not cash or a cash voucher;
- The cost of the benefit does not exceed £50 (including VAT) for each employee;
- The benefit is not provided under a salary sacrifice or similar arrangement; and
- The benefit is not provided in recognition of particular past or future services provided by the employee.
For certain companies, broadly those that are family-owned or controlled by five or fewer shareholders, there is an additional annual cap of £300 on the total value of trivial benefits paid to directors or office-holders or employees related to them. And again, please bear in mind that if the cost of a gift exceeds £50 including VAT, then the full amount is taxable. Bah humbug!
Examples of gifts that will qualify under the ‘trivial benefit-in-kind’ rules (including a turkey, provided the average cost is under £50!) can be found in HMRC’s guidance here.
Please bear our advice in mind when making your pre-Christmas plans and don’t hesitate to get in touch if there’s anything we can help you with.