Do you know what the facts are around HMRC and Christmas Party tax relief?
There is no specific allowance for a ‘Christmas party’ as such, however HMRC does provide limited tax relief for the cost of holding an ‘annual event’ for your staff, providing certain conditions are met.
As an employer, you may feel that the tax system does you few favours. However, all is not lost, as there is still one benefit available to your employees each year – albeit a small one. This is the favourable tax treatment of your annual Christmas do.
Outside of this specific exception, staff entertainment is considered to be a ‘Benefit in Kind’, and directors and employees would need to pay tax on the amount of the benefit.
But, employers are entitled to provide an annual event for yourself, any staff you employ, and their partners, and reclaim the costs against the business, as long as the cost per head does not exceed £150 (including VAT).
Bennett Verby‘s Juliet McLeod explains more: “The cost per head can include accommodation, transport, and food and drink – but must not exceed the £150 threshold, even by a penny. The event must also be open to all company staff to attend.
“You may decide to hold several events throughout the year, but the total claim for all events must not exceed this threshold. So, you may decide to make the claim for a summer event rather than a festive one.
“Importantly, as with all expense claims, you do actually have to hold an event in order to reclaim the costs against your company. You can’t simply make a cash claim for £150.
“To calculate the cost per head, HMRC states that you should ‘divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.”
Gifts to customers of the products or services you normally sell are tax allowable, as long as you are not in the food business. Small promotional gifts of any item are also treated as tax allowable for your business if they cost less than £50 each and carry a clear advertisement for the business. However, you cannot get income tax or corporation tax relief for the cost of gifts of food, drink, tobacco and gift tokens of any value.
* A number of gifts worth more than £50 in total should not be made to the same person in any 12-month period.
* If you are VAT registered you can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.
* If the gift cost more than £50 (excluding VAT) you must account for the VAT on the item as if you had sold it at cost.
Gifts to your staff are tax allowable, but your employees could be taxed on the value of the gift as a benefit in kind. In that case you would also have to pay Class 1A National Insurance on the value of those gifts. The Taxman does consider some small items to be trivial benefits, which can be given as tax-free gifts to staff members. Trivial items can include seasonal gifts such as a turkey, an ordinary bottle of plonk (not fine vintage or champagne), or a box of chocolates.
Where you are considering making larger gifts to each employee such as a Christmas hamper, you can include the cost of those gifts in a PAYE Settlement Agreement (PSA) with the tax office. The PSA allows you pay the tax and NI due on behalf of your employees.
Thanks To Juliet McLeod at Bennet Verby for her contribution to this article.