‘Tis The Season To Be Giving
The festive season is now in full swing and over the next few weeks businesses will be having parties and other festivities as a way of thanking their staff.
Whilst there is no specific exemption for Christmas parties per se, we do have the HM Revenue & Customs (HMRC) annual exemption for staff parties which can come into play.
There is an exemption of up to £150 (including VAT) available per head that businesses can utilise.
There are also rules around Trivial Benefits that can be useful at this time of the year.
How Does The £150 Limit Work?
The £150 applies per attendee at an event, or multiple events. It can include accommodation, transport and food/drinks, and it can include partner or family members of the employee. However, the following must apply:
- It must be open and available to all employees (you could however have different events for different employees).
- The purpose of the event must be to entertain staff.
- It must not exceed £150 per head, otherwise the whole amount is taxable; it is a limit not an allowance.
- You can have multiple events that make up the allowance e.g. Summer Picnic and Christmas Party.
- The cost per head of each event is calculated simply as the total cost divided by number of attendees.
- VAT for events relating to all employees can be claimed as input VAT.
Remember, the limit is per head attending, not per employee.
Careful consideration should be given if the total spend in the tax year exceeds £150 and if it covers more than one event. Relief will still be available, but only for some of the events. It is best to consult your advisor in such cases.
This allowance was introduced by HMRC from 6th April 2017 but in my opinion, it is still not used extensively by businesses, either because they are not fully aware of it or because they have a general awareness, but do not know how to apply it in practice.
Either way, it is a very useful gift from the taxman which should no longer be ignored.
It can include gift cards (not convertible to cash), bottles of wine/spirits, hampers or any other festive gifts you can think of not costing more than £50 (including VAT) per gift.
However, you cannot give away cash.
So, What Are The Rules For Trivial Benefits?
The rules are there to ensure that the gift is a genuine gift and therefore, by its very nature, there should be an element of surprise attached to it as with most great gifts. So, what do I mean by element of surprise?
- The gift cannot be a reward for service (as this may carry some expectation set out in the staff manuals) although there is an altogether separate exemption available for long term service reward which does not form part of Trivial Benefits rules.
- It cannot be contractual.
- It cannot form part of the salary sacrifice scheme (which is contractual) that you may be operating.
- It cannot be habitual and therefore again creating an expectation, i.e. every Christmas.
- It cannot be a reward for doing the job.
- It cannot be a reward for achieving targets.
- Close company director/shareholders have a limit of £300 a year (close company is where there is 5 or fewer shareholders).
Let’s Have Some Examples
You went shopping and noticed some great deals on Christmas hampers. You purchased hampers at £40 each for your six staff and gave it to them on Christmas Eve. You did this just because it was Christmas and you wanted to make them happy. You have never done this before. It was a random and spontaneous act on your part. This would be fine, and you will have happy smiling faces at the office.
Next week you went shopping again and saw another deal on Champagne, and you brought six of them again. You gave the fizz to the staff on New Year’s Eve as a celebration for working hard and generating extra sales for the Company.
Well, you will still have some happy smiling faces but that may soon turn into sad faces when you tell them that the cost of the gift needs to go through the payroll because the Champagne is a gift for recognition of service i.e. generating the extra sales!
There is a significant difference between the hampers and the champagne. The former was a gift as a result of being in the festive spirit, whereas the latter was an opportune moment to thank the team for their job. In actual fact, it was a reward for service.
Taxman Keeps on Giving & So Can You
As mentioned, gifting employees for the contribution they make to your great business is a good thing. The fact that the gift or party will not attract PAYE or National Insurance is even better.
However, the icing on the cake is that you claim the VAT back and the expense is fully allowable for income tax and corporation tax.
Don’t forget the exemptions are not just for Christmas, they can be used for any events during the year as a way of celebrating your team. Random acts of giving are certainly the way to go, as long as they do not cost more than £50 per occasion.
Therefore, keep giving, safe in the knowledge that there will be no tax penalties when you reward your staff. Just be mindful of the rules around gifting and benefits.
If you feel you want to indulge in some festive giving and would like to make sure you are doing it in the most tax efficient way (hey, there is being generous and then there is being too generous) than please feel free to get in touch and I will be happy to assist.