Christmas Parties & Gifts – A Tax Guide

It is that time of the year again and Christmas is upon us. Christmas parties are on the horizon (if not over it). Are you planning on throwing a Christmas Party and handing out gifts? REMEMBER HMRC is watching you!!!! Here is a quick reminder of the benefits to staff and tax treatment of seasonal gifts.

Staff Parties

I am often asked what are the tax implications are to throwing Christmas Parties for employees? There are three different areas to think about when you are giving a Christmas Entertainment: These are employees, business owner and anyone who is not an employee (partners, customers and subcontractors).

Employees

  • There is a tax exemption for staff parties or an annual function however there are terms and condition that have to be followed.
  • An employer can spend up to £150 per employee per year. Provided the £150 limit is not exceeded you can have as many parties in the year.
  • The £150 is inclusive of VAT.
  • The £150 is a limit and not an allowance. For example if the cost is £152, the whole benefit is taxable.
  • It is important the cost of the party is the whole cost of the event from start to end including transport and accommodation in the calculation.
  • If the limit is exceeded this must be reported on each employee P11D, or this grossed up tax can be paid by the employer through a PAYE settlement agreement.
  • The event must be mainly for entertaining staff.
  • This event must be open to all staff not just for directors.
  • The cost of the event will be an allowable expense for your company.

Anyone other than employees

  • If there are customers, subcontractors or employee’s partners then these individuals count as part of the people present when you are working out cost per head was more or less than £150.
  • If the party consists of providing food and drink then you can reclaim VAT on the part related to your subcontractor staff. This doesn’t apply to the party entertainment.
  • You’ll never be able to reclaim VAT on the cost of entertaining employee’s partners or customers.

Business Owner

  • What about you the business owner?
  • If you are a Limited company and the director you are an employee.
  • If you are a sole trader, partner in a partnership company you are not an employee. The cost of the meal, drinks, taxi etc.. is not business entertaining.
  • It would be have to be part of the money you take out of the business i.e. drawings

Gifts for employees

  • If you like to buy seasonal gifts for your team, the rules are different depending on whether you’re in business as a sole trader, partnership or limited company.
  • If you’re a sole trader, then as long as the gift is genuine, HMRC treat it as a personal gift from you as an individual to your team member and you don’t have to put it on form P11D.
  • If you’re in partnership or your business is a limited company, then the rules as to whether the gift is a taxable benefit depend on what the gift is. If employees are given food, wine, Christmas hamper etc…as long as the cost is reasonable HMRC won’t seek to tax it.
  • Unfortunately HMRC will not give us a monetary limit but in our experience less than £50 a head is usually expectable. 
  • If the value is more than £50 a head it should be recorded on the employees P11D.

Record Keeping

  • It is important as an employer you take great responsibility to calculate the annual cost per head of events.
  • If you fail to take reasonable care it can lead to Tax Penalties.
  • We recommend you keep sufficient records to prove to HMRC the numbers attending any event so the cost per employee can be calculated. 


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