It is that time of the year again and Christmas is upon us. Christmas parties are on the horizon (if not over it). Are you planning on throwing a Christmas Party and handing out gifts? REMEMBER HMRC is watching you!!!! Here is a quick reminder of the benefits to staff and tax treatment of seasonal gifts.
I am often asked what are the tax implications are to throwing Christmas Parties for employees? There are three different areas to think about when you are giving a Christmas Entertainment: These are employees, business owner and anyone who is not an employee (partners, customers and subcontractors).
- There is a tax exemption for staff parties or an annual function however there are terms and condition that have to be followed.
- An employer can spend up to £150 per employee per year. Provided the £150 limit is not exceeded you can have as many parties in the year.
- The £150 is inclusive of VAT.
- The £150 is a limit and not an allowance. For example if the cost is £152, the whole benefit is taxable.
- It is important the cost of the party is the whole cost of the event from start to end including transport and accommodation in the calculation.
- If the limit is exceeded this must be reported on each employee P11D, or this grossed up tax can be paid by the employer through a PAYE settlement agreement.
- The event must be mainly for entertaining staff.
- This event must be open to all staff not just for directors.
- The cost of the event will be an allowable expense for your company.
Anyone other than employees
- If there are customers, subcontractors or employee’s partners then these individuals count as part of the people present when you are working out cost per head was more or less than £150.
- If the party consists of providing food and drink then you can reclaim VAT on the part related to your subcontractor staff. This doesn’t apply to the party entertainment.
- You’ll never be able to reclaim VAT on the cost of entertaining employee’s partners or customers.
- What about you the business owner?
- If you are a Limited company and the director you are an employee.
- If you are a sole trader, partner in a partnership company you are not an employee. The cost of the meal, drinks, taxi etc.. is not business entertaining.
- It would be have to be part of the money you take out of the business i.e. drawings
Gifts for employees
- If you like to buy seasonal gifts for your team, the rules are different depending on whether you’re in business as a sole trader, partnership or limited company.
- If you’re a sole trader, then as long as the gift is genuine, HMRC treat it as a personal gift from you as an individual to your team member and you don’t have to put it on form P11D.
- If you’re in partnership or your business is a limited company, then the rules as to whether the gift is a taxable benefit depend on what the gift is. If employees are given food, wine, Christmas hamper etc…as long as the cost is reasonable HMRC won’t seek to tax it.
- Unfortunately HMRC will not give us a monetary limit but in our experience less than £50 a head is usually expectable.
- If the value is more than £50 a head it should be recorded on the employees P11D.
- It is important as an employer you take great responsibility to calculate the annual cost per head of events.
- If you fail to take reasonable care it can lead to Tax Penalties.
- We recommend you keep sufficient records to prove to HMRC the numbers attending any event so the cost per employee can be calculated.