A tax guide for Christmas gifts and staff parties

As the holiday season approaches, businesses will undoubtedly consider recognising their staff with Christmas gifts and Christmas parties. But what are the tax ramifications, and what should you think about before spending money?

Christmas Gifts

Giving an employee a gift of any kind is typically considered a taxable benefit. Fortunately, HMRC has opted not to be a humbug in this regard, and you may be able to depend on the ‘trivial benefits’ exemption when it comes to Christmas gifts.

A benefit must match the following requirements to be considered trivial:

• The cost of giving the benefit is not more than £50
• The advantage is not monetary or in the form of a cash voucher
• The benefit is not supplied through salary sacrifice or any other contractual obligation
• The benefit is not given in exchange for services

How often can we use the trivial benefit exemption?

If the qualifications are met, the trivial benefit exemption can apply to any presents given to employees during the year. This applies to Christmas, and it could also apply to Easter eggs, wedding and new baby gifts, and more. However, it does not apply to thank you presents, because they are considered a reward for service.

HMRC can challenge anything provided on a regular basis under the trivial benefit exemption if it creates a ‘legitimate expectation’. Quarterly drinks are an example. HMRC may argue that, because these drinks are widely expected, the trivial benefit exemption cannot apply to them.

What if the gift is worth more than £50?

If you want to give presents for more than £50, you can do so without triggering a taxable benefit for your employees. However, they would need to be included in a PAYE Settlement Agreement (PSA), in which you, as the employer, would pay the tax payable on the benefit on the employee’s behalf on a grossed-up basis.

There are extra requirements for close company directors and other office holders, who are subject to a £300 annual cap. If the benefit is given to a member of the employee’s family or home who is not an employee of the firm, it counts towards the £300 exempt amount. A £300 cap will also apply to the director’s or other office holder’s family or household members even when they are also employees of the company.

Christmas parties and other yearly events

A staff Christmas party, like gifts, is often deemed to be staff entertainment, and so a taxable benefit.

However, HMRC has an annual events exemption, which means that if the annual event meets specific criteria, the benefit delivered is exempt from tax. The conditions are as follows:

• It is a yearly occurrence
• It is available to all employees
• It costs less than £150 per person

Can you have ‘exempt’ parties at any other time of year?

This exemption can be spread between multiple events, such as a summer barbecue and a Christmas party. However, the total cost of both activities must not exceed £150 per person. If it does, then only one event will be exempt, and the other will have to be reported through a PSA (the cheaper event, of course!).

How do we calculate costs?

The cost per head is calculated by taking into account all costs associated with the event, such as the venue, food, and beverages. It will also include any offered overnight hotel and travel charges, and the total must include VAT. After this, the overall cost is divided by the total number of attendees, including non-employees.

If the business has more than one location, an annual event that’s available to all staff based at one location is nonetheless ‘open to all’. You can also organise separate parties for different departments if all employees are able to attend at least one of them.

If you are looking for further tax advice over the festive period, call JW Hinks on 0121 456 0190. Our friendly team of experts can help ensure you are doing everything to minimise your tax burden while still remaining compliant with HMRC’s regulations.