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For lots of people, Christmas is an opportunity to take a bit of time out, but for those running businesses a Christmas party or gift can also be a chance to reward employees (and yourself) and thank your clients for their business.
Fortunately, HMRC do offer some incentives if you are feeling festive although, as ever, the rules for claiming tax relief against your Christmas do are pretty strict.
To help you avoid any expensive mistakes, we’ll go over what you might be able to claim for your work Christmas party, any gifts, and all the trimmings.
Yes, but as you might expect, there are some rules! Despite their penny-pinching reputation HMRC isn’t totally devoid of Christmas cheer and allows limited companies (but not sole traders) to put on a social event and claim it against tax. In order to be exempt, the event must:
As long as you comply with these rules then you are good to go.
One of the key things to remember is that this is an exemption, not an allowance. To provide some Scrooge-like caution: don’t spend more than £150 per person in a tax year. The minute that extra mince pie tips you over £150 per head, the whole thing becomes taxable.
Yes. A virtual party is still claimable as long as it complies with the rules. Lots of businesses work remotely these days, so as long as all the other conditions are satisfied you can go ahead with logging in for a totally virtual party.
Yes absolutely, and it’s up to you how you allocate the allowable £150 per person throughout the year. Spend £25 on a spring bash, £25 on a summer picnic, £25 on a Halloween spook-fest and then £75 on a great Christmas disco. You can split it any way you want, as long as you follow the rules, and don’t pass the £150 limit.
Naturally, some costs will be easy to work out. You may have booked to have a meal at a location that charges £60 per head for example. Others won’t be so clear, such as booking a DJ or table magicians, so you’ll need to add up the cost of the whole event and then divide it by the number of people attending.
Inviting your clients or subcontractors falls into the realm of business entertaining which isn’t allowable, so you won’t be able to use it against your tax bill.
The good news (maybe) is that you also get an exemption for a plus one. As long as they are a family member or partner then you can claim another £150.
Yes. If you have a company that has more than one location, then you can hold separate events. By the same token, if you have different departments then they can each have their own party, but every employee must have the chance to attend at least one of the parties. The total spend for each person can’t go over that £150 mark.
You can give what HMRC terms ‘trivial’ gifts to staff, such as food, chocolates, or wine (HMRC include the example of a turkey). These are allowable expenses that you can offset against your tax bill and aren’t a benefit-in-kind for the recipient (we’ll explain these further down).
A trivial benefit is a small, one-off gift that you might give to your directors and employees throughout the year.
In the past, these would need reporting to HMRC for tax and National Insurance purposes, but the new trivial benefit exemption means that you won’t need to as long as you comply with the rules:
As long as the benefits comply with the rules above then there is no limit for employees. For directors of close companies (controlled by 5 shareholders or less), the aggregate amount in one tax year is £300, so this could equate to six gifts of £50, for example. If it’s within the guidelines you won’t need to pay tax, NI, or even let HMRC know. Good stuff.
We can’t hope to think of all the different gifts a business might give their employees during the year, but to give you an idea of some of the things we’ve seen over the years:
If your Christmas gift (or whatever the event might be) goes over the £50 limit then the whole amount become a taxable benefit. Also known as Benefits in Kind, you’ll need to report these using a P11D form or through payroll so you can pay employer’s National Insurance and your employee can pay income tax on the equivalent cash value.
There’s certainly nothing stopping you, but if you want to claim the cost as a business expense it must:
Consumables such as food and drink aren’t tax deductible due to their temporary nature.
Any Christmas bonus you give to employees still counts as income, so it needs to go through payroll with their other earnings and reported via PAYE where it’s subject to tax and National Insurance as usual.
One possible exemption is if you’re giving an employee a non-cash long-service award. If any of your staff have worked for you for at least 20 years then you are able to give them a long-service award, tax free. It can’t be cash, and it must be worth less than £50 per year of service.
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