Christmas is of course a time for giving. This is the case when it comes to employers providing some festive cheer at the end of the year, whether that be a party or a gift. In terms of the tax implications and what employers can claim back though, often the information isn’t widely reported. Many employers end up not putting through any tax claims when it comes to Christmas gifts or parties. This results in them losing out on potentially huge savings. Likewise, many employers choose to claim back on more than they’re entitled to. This can lead to huge ramifications from HMRC which could put your company’s livelihood in jeopardy.
Before closing shop for Christmas and the New Year, it’s worth having a look to see what you’re entitled to. We break down exactly what allowances and exemptions businesses have when it comes to Christmas…
Can Businesses Claim For Staff Christmas Parties?
Christmas parties are a great way for rewarding employees after a long year, especially during the present economic turmoil. Fortunately, HMRC provide some incentives for businesses when it comes to annual parties. Staff entertainment is normally tax deductible against a business’ taxable profits. This is so long as it is wholly and exclusively for the purposes of the trade and is not incidental to customer entertainment.
The parties will be exempt from tax and National Insurance, but there are some strict rules, including the following:
- The party can’t cost more than £150 (including VAT) per person per year
- The party must be an annual event, such as a Christmas party or summer party
- The party must be open to all of your employees (and must consist mostly of employees)
- Shareholders are not included in the exemption if they aren’t employees or directors
You can also claim an additional £150 (including VAT) per person for a plus one for each employee, providing they are a family member or partner. It’s worth noting that staff parties are an exemption, not an allowance. It’s imperative that you come in under the exemption limit per person per year for it to apply. If the party exceeds £150 per person, then you won’t be able to claim the first £150 as a business expense and therefore it will be taxed normally. The exemption covers the whole year. This means the combined cost of all parties in a single year cannot exceed £150 per person (including VAT).
Can Businesses Give Gifts To Employees Over Christmas?
Under trivial benefit, an employer may be exempt from paying tax on a gift. As of 6th April 2016, if an employer provides a benefit to its employees and certain conditions are satisfied, then the benefit is exempt from tax. Widely speaking, the gift should not be:
- Worth more than £50 (VAT inclusive)
- Cash or a cash voucher
- Part of any contractual obligation
- Provided in recognition of particular employment services/duties (or in anticipation of such services)
If the above limits are exceeded, then the entire value of the gift is taxable and not just the excess. There’s no need to inform HMRC, and the trivial benefit won’t count towards taxable income or Class 1 National Insurance contributions. Trivial benefits also aren’t needed to be reported on annual P11D or P11D(b) forms. Gifts not meeting these conditions are taxed in the normal way through the P11D, PAYE Settlement Agreement (PSA) or taxed through the payroll.
When it comes to ‘close companies’ (a limited company with five or fewer shareholders who are all directors), the rules are slightly different. Directors of close companies can’t receive trivial benefits worth more than £300 in total during a tax year (and no more than £50 for each individual benefit).
How we can help
We hope this has outlined to you the tax possibilities and implications around gifts and parties for Christmas. At Nordens we offer expert advice and assistance with all of your business needs: from your everyday accounting to Advisory, Tax, Audit and more. If you need support with any of the above or just want to speak to a member of the team, get in touch today.
