Christmas Parties & Gifts – A Tax Guide

Christmas presents under decorated Christmas tree.

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:

  1. Employees
  2. Anyone who is not an employee (partners, customers & subcontractors)
  3. Business Owner

 

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 exactable.
  • 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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