Festive tax advice

Dec 13, 2022 | Tax Tuesday, Taxation

The festive season is fast approaching, and with that comes the excitement of gift-giving and planning your Christmas party! Although it’s likely that you’re prepared when it comes to employee presents and office celebrations, have you considered whether you need to pay tax on them?

With less than two weeks to go until Christmas Day, we thought we’d share some festive tax advice that would even get Scrooge into the Christmas spirit.

Giving back to your employees, while saving on tax…

As the year draws to a close, you probably have ideas of how you’d like to thank your employees for all their hard work in the past year. If a gift fulfills a certain criteria, it is known as a trivial benefit, and you do not have to pay tax on it. You also aren’t required to pay National Insurance or let HMRC know. However, each of the following criteria must apply:

  • It cost you £50 or less
  • It isn’t cash or a cash voucher
  • It isn’t a reward for the employee’s work or performance
  • It isn’t in the terms of their contract.

A trivial benefit could be a hamper filled with festive treats, a bottle of wine, or a supermarket gift voucher, amongst other ideas. It is important to note though, that you cannot receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.

Celebrating Christmas in style with a tax deductible party!

After working hard all year, your employees will be looking forward to their Christmas party, which has probably been planned since June (everyone loves to be organised, right?). Were you aware though, that if your event fulfils certain criteria it could be tax deductible?

HMRC offers employers a tax relief for the cost of an annual event for your workforce. However, to receive this tax relief, the event must:

  • Be open to all your employees
  • Be annual (e.g., your Christmas party or a summer event)
  • Cost £150 or less per person (including accommodation, transport, food and drink etc).

The above criteria allows for your employees to invite guests, given that the £150 limit is per head, rather than per employee. This makes the Christmas party a great opportunity to get to know your workforce’s nearest and dearest! It is important to remember though, that the cost includes absolutely everything from the party, so it’s important to keep an eye on your budget and take care when calculating the final cost per head. Another crucial point is that HMRC VAT notice 700/65 states that if only director, partners or sole proprietors of the business attend a Christmas party, then you cannot reclaim the VAT on party expenses. This is because the goods and services are not deemed as a business purpose – if all staff attend, then you can reclaim all of the input VAT!