Like the owners of many other small businesses, you may have already planned a Christmas party for your staff, but did you know that it could cost you less than you think.
Although there is no specific allowance for a Christmas party or other morale boosting events, HM Revenue & Customs (HMRC) does offer a company limited tax relief for the cost of hosting an ‘annual event’, if certain criteria are met.
A business can provide an annual event for its directors and staff and reclaim the costs and the VAT. If other people attend such as customers or suppliers, the treatment is not as straight forward. Provided the cost per head is not more than £150 (including VAT), the staff member will not suffer any tax on the event. The event also needs to be open to all staff. It can be restricted to staff working at just one location, but it cannot be restricted to certain staff, such as management only.
Should you wish, you can also hold several events throughout the year, but bear in mind that the total claim for all events must not exceed the £150 (including VAT) threshold. The cost per head can include food and drink, transport and even accommodation, but must not go over the strict £150 threshold. A simple way to work out the cost per head is to divide the total cost of the event by the total number of people who attend.
Outside of this specific annual event exception, staff entertainment is regarded as a ‘Benefit in Kind’, and directors and staff would need to pay tax on the amount of the benefit. This means you may want to think again before taking your staff out for an impromptu celebration and then trying to reclaim the cost.
It is important to note there are also rules to consider when buying your employees gifts. If you treat them to some chocolates or a bottle of wine, this type of gift would be deemed ‘trivial’ and would not be subject to any reporting requirements or tax and no National Insurance would be triggered.
HMRC will accept a benefit as ‘trivial’ if it meets the following conditions:
- It does not cost more than £50 (including VAT).
- It is not cash or a cash voucher
- The employee is not entitled to the benefit as part of any contractual obligation (including salary sacrifice)
- It is not provided in recognition of an employee’s particular services performed as part of their employment duties
If you want to make more generous gifts, the cash equivalent needs to be taxed via the payroll, form P11D or a Pay As You Earn Settlement Agreement (PSA). In the first two instances, tax and National Insurance will be triggered and will be deducted from the employee. However, with a PSA the employer agrees to settle the liability themselves.
Treating your staff can be a very complex area, so call 01803 666921 or enquire online here to arrange an appointment with your local TaxAssist Accountant and give yourselves peace of mind this Christmas.
By Jo Nockels FCCA
Last updated October 2019
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.