Staff Christmas parties and gifts to employees – what qualifies for a tax deduction?
Ho ho ho! With the festive season about to begin, we thought it timely to provide a reminder of the tax rules relating to Christmas gifts and parties.
Gifts to clients
Client entertaining is not tax deductible for a business and should be accounted for separately to staff entertaining for tax and accounts reporting purposes.
Making small gifts to clients is generally treated as entertaining and is not allowable. An item incorporating a company logo/advertisement is acceptable provided it costs less than £50 and is not food, drink, tobacco or exchangeable vouchers.
Be careful if you invite clients to the staff Christmas party – this element is client entertaining and not eligible for tax relief.
Staff Christmas party
Ah, the staff Christmas party. The annual festive shin-dig is great way to reward your hard-working staff for the year just gone and attracts tax relief, providing it does not 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 (and this £150 limit applies per person, per year so please add up all other annual staff events), 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 costs almost double when the additional tax and NI is applied!
Christmas gifts to employees
HMRC does not elaborate a great deal on this point but it’s generally accepted that modest gifts are exempt from tax and NI if they are ‘seasonal’, such as a turkey, alcohol or chocolates. Gifts in the form of cash or cash vouchers are taxable in line with other earnings. Other ‘trivial’ benefits such as a non-cash voucher are not taxable and do not need to be reported, subject to meeting the qualifying criteria.
Christmas bonuses in the form of additional pay must be reported along with ‘normal’ salary and are subject the usual tax and NI rules.
Staff gifts received from third parties
It’s not unheard of for staff to receive non-cash 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.