Christmas and tax relief

With the staff Christmas party season in full swing and many employers giving thought to staff Christmas gifts, here’s a reminder of the tax treatment which applies to this area.

Staff Christmas party

Tax relief is available on the annual staff Christmas party, provided it does not (together with all other staff entertaining for that year) cost more than £150 per person, is open to all employees and applies to all attendees, such as guests of staff. If the amount exceeds £150 per person for the year, be aware that the whole benefit becomes subject to tax, and either reported on the individual’s P11D or the tax paid by the employer via a PAYE settlement agreement. Overnight accommodation and taxis count towards the £150 limit, on top of the usual food and drink bill!

Breaching the £150 limit by just a small amount could mean the party could end up costing almost double when the additional tax and NI is applied!

Gifts to employees

HMRC does not elaborate a great deal on this point but it’s generally accepted that gifts are exempt from tax and NI if they cost less than £50 and are ‘seasonal’, such as a turkey, alcohol or chocolates. Gifts in the form of cash or gift vouchers are taxable in line with other earnings.

Gifts to clients

Client entertaining is not tax-deductible for the business and this must be kept separate from staff entertaining for tax and accounting purposes. Bear this in mind if you invite clients to the annual Christmas party.

Small gifts to clients are allowable for tax purposes. Again, HMRC considers under £50 to be reasonable, although the gift cannot be tobacco, food, drink, exchangeable vouchers or contain any advertising for the business. A challenge for some but there are still many possibilities and perhaps it’s time to get creative on the present front?!

Staff gifts received from third parties

It’s not unheard of for staff to receive gifts from clients, suppliers or other third parties. If this happens, bear in mind that gifts costing more than £250 are taxable on the employee.

So, it’s still possible to have a great deal of fun over the Christmas period without falling foul of the taxman!

To discuss your employer tax position, please contact [email protected] or call 01527 558539..