Christmas is a time of year when many employers like to celebrate with their team and recognise their hard work.
The good news is that an employer can contribute to the celebrations whilst also benefitting from some available tax breaks and therefore avoiding any additional tax liability for the company or the employees involved.
Christmas Bonuses and Gifts
Any cash or vouchers paid to employees as a bonus will always be taxable along with other income via the payroll or their P11D.
You may wish to give an employee a non-cash gift, such as a turkey, an ordinary bottle of wine or Christmas Hamper. HMRC have issued guidance that trivial gifts may not be taxable and therefore a gift under £50 would be considered trivial. However, a more substantial gift could attract a benefit in kind charge meaning the employee would be subject to a tax charge and reportable on their P11D.
The Christmas Party
These will be exempt from tax where:
- The annual party is available to ALL employees (or all employees in a given branch / department etc) not just Directors or Managers.
- The cost per head does not exceed £150 (So if there are 10 guests and 10 employees, then the whole cost should not exceed £3,000)
It is important to note that:
1. The cost per head includes the cost of the party, such as room hire, entertainment, food and drinks, plus any transport or accommodation provided and any VAT on the expenses incurred.
2. If the £150 per head limit is exceeded then the whole cost of the party becomes taxable, not just the excess.
3. VAT can be recovered against any VAT costs relating to entertaining employees. This does not include partners or former employees, so if the party includes guests, you will need to apportion the relevant costs appropriately for VAT recovery.
4. The £150 limit is cumulative for all functions in the year (eg summer party costs £70 per head and Christmas party at £100 per head, results in the whole Christmas Party being taxable).
What if you want to provide a more expensive gift and or a better party?
Then it is possible to take advantage of the Annual Parties Exemption. If the total amount per head of the party and the gifts, provided at the same time, come to no more than £150 then the usual tax rules won’t apply.
Alternatively, the employer can enter into PAYE Settlement Agreements to settle any tax and NIC on behalf of their employees.