A tax and advisory firm has added its voice to calls from the hospitality industry for tax rules around Christmas festivities to be eased. 

Following almost two years of uncertainty, Blick Rothenberg has said that the tax-free limit should be increased to £300 per employee. This would double the current £150, including VAT, per employee that has been in place since 2003.

The firm claims there would be a range of benefits from an increase:

1. Additional support for the hospitality industry, which is continuing to feel the effects of the pandemic. Many Christmas parties have been postponed or replaced with gifts as Coronavirus case numbers remain high.
2. An increase would allow businesses to show ‘a genuine thank you’ to their teams for their efforts over the last two years.
3. An increase of this level would mean that in most reasonable cases there would be no need for employers to report any taxable benefit in kind charge through a PAYE Settlement Agreement.

What are the current rules?

HMRC rules currently allow employers to spend up to £150 per employee per tax year on events such as Christmas parties or perhaps summer celebrations. If the spend per employee remains below that level over the year, the expense does not need to be declared.

If you are a sole Director without any other employees, HMRC will challenge this expenditure. If you have a Company Secretary, they are deemed as an employee.

If employers exceed that limit over the year, the total amount spent then attracts tax and National Insurance. The expense must be declared on a PAYE Settlement Agreement, NOT just the amount over the £150.

It’s important to note that the cost per head calculation includes any incidental costs, such as travel or accommodation.

Can employers give gifts instead?

Absolutely! Giving a gift instead of holding a team event may be a very sensible option. To avoid generating a tax bill from such a gift, you need to ensure the present falls within the ‘Trivial Benefits’ conditions.

These are as follows:

• The gift cost you £50 or less to provide (including VAT).
• It isn’t cash or a voucher that can be redeemed for cash.
• The gift isn’t a reward for an employee’s work or performance.
• There is no mention of the reward in the terms of the employee’s contract.

There are some specific exclusions from the Trivial Benefits Exemption:

• Taxis home when an employee works late.
• A working lunch, as it’s specifically related to employment.
• Gifts or rewards for hitting sales targets.

What about a cash gift?

If you have the cash available and are thinking about giving your employees a cash gift, the simplest solution is to give a cash gift as part of your payroll in December and let it be taxed along side the employee’s normal salary payment.

Trivial Benefits are not just for Christmas!

An employee can, in most cases, receive multiple Trivial Benefits during the year, so bear them in mind during the year as well as at Christmas. Just remember the conditions, above.

Can Directors receive Trivial Benefits?

For Directors or other office holders of a ‘close company’, there’s a total limit for Trivial Benefit gifts of £300 in each tax year. (A close company is a limited company that’s run by 5 or fewer shareholders.)

The regulations around Christmas parties and Trivial Benefits can be difficult to navigate. If you’re unsure, don’t just risk it, please get in touch! We’ve some across numerous different situations over the years and are very happy to talk you through the options. Alternatively, you can find guidance on the HMRC website.