As the season of presents and parties descends upon us, in person events are welcomed by many.
Over the festive period there is a lot to be considered, we want to ensure that worrying about tax isn’t added to your ever-growing list.
Most businesses have the same question ‘Is our Christmas party is tax deductible?’.
In a word, yes!
Whilst HMRC don’t have a specific tax relief for Christmas parties, they do have one for annual events, but of course, there are conditions that must be met.
Limited spends per head
For a limited company, you can provide events for your staff (and their partners) then claim the cost against your company’s profits providing the spend does not exceed £150 per person.
The costs include transport, accommodation, food, and drink and the event must be open to all employees.
The good news is that you can throw as many events as you wish throughout the year, the bad news is that the £150 is a total throughout the whole year (all events added together) and includes VAT.
The other caveat comes when the amount is exceeded. This is a limit, not an allowance. Therefore, if you spend more than £150, even by a penny, none of the costs are deductible.
To work out the cost per head, HMRC advise to total the cost of the event as a whole and divide it by the number of attendees.
As we are yet to see the end of the pandemic, HMRC are allowing the same tax benefits for virtual events.
Rewarding staff over Christmas may not have the same impact if it is followed by a tax bill.
Firstly, there must be no contractual entitlement to a gift. Even if they are given annually, or to all staff, it does not mean a staff member has a contractual right to receiving one.
Thankfully, HMRC recognise that it is the time for giving and therefore a seasonal gift such as turkey, wine or chocolates are not taxable, providing they cost less than £50 per head.
If, as an employer, you wish to splash out on an expensive gift such as a luxury hamper that exceeds £50, this will have to be reported on the employee’s P11D.
It might be worth noting here that immunisations usually given at this time of year, such as the ‘flu jab’ are seen to be trivial and therefore no benefit needs to be reported.
Many employers like to give gifts to their employees in December and providing it is seen as a trivial benefit no tax charge will be incurred by the recipients.
If the conditions are not met, the gift will be a benefit in kind, therefore taxed and will need reporting to HMRC.
Please note, as with the event amount, the £50 cap is not an allowance, if it is exceeded the entire amount of the benefit will be taxed.
Despite the inner child brought out in us all when opening a Christmas card to cash, it isn’t always the best solution for your employees.
The reason is because of PAYE income tax and Class 1 national insurance. Regardless of the reason the money was given, cash given to employees is subject to these deductions and depending on each employee’s individual circumstances, the amount they receive may vary.
Please note, the above it a brief outline of the tax rules that could turn you into a scrooge over the festivities should you fall foul of them, but if you need any more advice on gifts or events for employees please call us on 01482 888820.