With the Christmas party season upon us for many, we are often asked about what can be claimed.
Christmas Parties - What is exempt?
There is a tax exemption for employee entertaining if the event is all of the following:
- an annual party or social function, such as a Christmas party or summer barbecue
- it is open to all employees (or all employees based at one location)
- the cost does not exceed £150 per head (inclusive of VAT)
The total cost of the party is the whole cost of the event, from the start to the very end. It therefore includes food, drink, entertainment, taxis home, overnight accommodation, etc.
The limit of £150 per head applies to all those attending the function, not just employees. So, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests.
A taxable benefit in kind will arise if either the limit is exceeded, or the function is not open to all staff or it is not an annual function.
TIP: Please be aware that the £150 per head limit is an exemption not an allowance – go just a penny over the £150 and the full cost becomes taxable.
- HMRC have confirmed that Virtual Christmas Parties are eligible for the annual function exemption.
Gifts to Employees
Christmas presents paid in cash to staff will be taxable as earnings in the normal way (subject to tax and national insurance). The same tax treatment also applies to vouchers exchangeable for cash, with the employee taxed on the full value of the voucher.
Vouchers exchangeable for goods and services only (non-cash vouchers) are also taxable and must be reported on the employee’s form P11D. Class 1 national insurance will normally need to be deducted through the payroll.
Make sure you tell the person who prepares the payroll, so they can report the correct figures to HMRC.
TIP: You may wish to give employees a seasonal present, such as a turkey, a bottle of wine, or a box of chocolates. Provided the cost of the gift is ‘trivial’ – typically less than £50 ahead – the gift will usually not be taxable.
If the gift exceeds this value, it will be taxable and it will need to be reported to HMRC on either a form P11D or through a PAYE Settlement Agreement (PSA)
Please note: 3rd parties
Employees may receive gifts from third parties as a result of their employment. As long as the gift does not exceed £250 in cost, it should not be taxable for the employee.