Christmas Parties -Do It Right

Beware the Festive Cheer

It is fast approaching that time of year where employers may wish to celebrate the festive season with their employees, perhaps rewarding them with a Christmas get together.

But businesses need to be mindful that the yuletide spirit does not turn sour, inadvertently, for their workforce from a tax perspective. So what do employers need to do to avoid an unsuspecting tax burden?

• A business can spend up to £150 per head for annual events such as a Christmas party.
• The event must be open to all employees or all those situated at one location. It must be an annual not a one off occasion.  
• This is an exemption not an allowance and covers the whole tax year. If the particular event costs more than £150, then the whole amount is taxable, not just the excess above that threshold.
• The exemption is ‘per head’ and not ‘per employee’ so can include partners and children.
• The cost includes:

1. a) The value of the event itself, for example the food, drink, hiring of any venue plus any accommodation or transport provided.
2. b) Any VAT in respect of those expenses.

Example

• Valiants Ltd have a Christmas party costing £130 per head, plus a summer barbeque amounting to £60 per head.
• The company would be wise to use the exemption limit against the Christmas party otherwise the combined total of £190 per head would all be taxable.
• Potentially the employees would be taxable on the cost per head from the barbeque event, unless the employer opts to cover this on behalf of the staff by way of a Pay As You Earn Settlement Agreement (PSA).

A PSA allows employers to cover the tax and national insurance due on minor, irregular or impracticable benefits provided to employees. If the employer chooses this option they need to realise that it will cost them more as they will be covering the tax due, based on the employees rate of income tax.

The business owner may want to give their employees a Christmas gift. If so, they may be able to claim the trivial benefit tax exemption. The following conditions need to be met:

• The gift cannot be cash or a cash voucher and must not exceed £50.
• It cannot be a contractual obligation to provide this benefit.
• The benefit isn’t provided in recognition of services performed, or anticipated to be performed, by the employee.

These trivial benefits can potentially be given as often as you like during the course of the tax year unless the person is a director of the company or connected to them (e.g. a spouse), in which case there is an annual restriction of £3,000.

Tip

Please do not hesitate to contact us to see if any of these annual events or gifts fall within the exemption regimes or if you want to go down the PSA route.