As soon as we’re past Halloween, our thoughts inevitably start to turn towards the next set of festivities! Adverts promise  ‘delivery by Christmas’ and shops suddenly fill with tempting goodies to fill our trollies.

At this stage of the year, thoughts invariably start to turn to planning your celebrations for Christmas, giving gifts to your team or entertaining. There are key things you need to consider now rather than later.

For team celebrations, you can use the tax free allowance of £150 per head, per year, but as ever with HMRC, there are conditions that need to be met!

These are as follows: 

• The total cost of a Christmas event cannot exceed £150 per head, per year, including all costs relating to the event. This sum has to include things like taxis home, prizes, entertainment and VAT. The total of £150 is an absolute limit, so if the total per head ends up at £151, the whole amount becomes taxable on the very people you were trying to reward. If this happens it will need either to be declared on a P11D for them, which is likely to incur a tax bill, or you should enter into a PAYE settlement agreement with HMRC. 
• Any event must be for all employees, not just senior staff or directors. 
• Other guests may be invited, but the main purpose must be the entertainment of all staff. 
• Within the £150, you can have additional ‘annual events’, such as a summer BBQ, but the total cost per head of all of them must be less than £150 over the tax year. 

Within the business’ accounts, it is useful to know how costs are split between entertaining staff and any clients or customers you may invite as the tax implications are different, so keep a clear record of any expenses as they arise and of who attends the event. 

Employee Gifts – Trivial Benefits

Cash or cash vouchers that you give to your team at Christmas will always be taxable and must be shown in the payroll, but ‘small gifts’ are not. The distinction between what is taxable and what isn’t can be vague though, with the definition of ‘trivial’ being the key. 

• Any gift you give must be classable as ‘trivial’ to the recipient rather than to you. HMRC give examples of items such as a turkey, or a bottle of ‘ordinary’ wine, or a box of chocolates.
• The value of the gift must be less than £50, including VAT.
• Gift cards can be included as they are tied to one retailer, as long as the other criteria are met, and there is no cash alternative available.
• The gift cannot form part of any contract of employment, or be in return for work completed.
• If the gift cannot be classed as ‘trivial’ the value of it will again be taxable on the employee and should appear on a P11D or in a settlement agreement.
• For Directors of closed companies, where there are five or less shareholders, the annual total of these gifts must be under £300.

You can see the Trivial Benefits guidance from HMRC here. Do get in touch if you aren’t sure, as sadly there are no hard and fast rules from HMRC to help you decide! 

If your staff are lucky enough to receive gifts from grateful customers, as long as the value is beneath £250 there will be no tax charge on them, but of course you should be aware of the implications of the Bribery Act. 

Additional points:

• VAT is recoverable on employee entertaining, but not for guests, or former staff members, so again, keep careful note of who attends and apportion the costs accordingly.
• Where a party is just for directors, partners or sole traders, VAT cannot be reclaimed, but it can for a party where there are other members of staff. 

As ever, if you have any questions or doubts on the above or any other subject, please contact us!