How can you party at Christmas and save tax?
It’s that time of year again; Christmas decorations are going up and the work Christmas party will soon be here.
As a business owner you might be wondering if you can treat your team, and yourself, to a night out (and some dodgy dancing!) and the business pay for it.
Are you also wondering if your business can pay for employee Christmas gifts?
Usually when you give an employee something that isn’t wages, it gets treated as a benefit which usually has tax implications for both your employees and your business. When you see ‘taxable benefit’ in this article this is what is meant here.
However, the powers at be at HMRC do actually recognise it’s nice to treat your team and have given some tax breaks in this area.
This article will give you some ideas on what is possible in terms of treating your team (and yourself!) at Christmas, but saving tax at the same time.
The Christmas Party
You can put on a Christmas Do for your employees and, as long as the cost per head doesn’t exceed £150, it’s tax deductible. Party time!
Let’s run through some of the details:-
- The £150 per head is including VAT;
- The £150 has to include transport and accommodation costs. So for example, if you go for dinner and put on a taxi, the taxi is included in the cost;
- The event must be open to all employees;
- The £150 is an annual limit for staff entertainment. That means if you have thrown a summer event as well then you need to factor in the cost of this as well. For example, if you put on a summer BBQ for staff and this cost £75 per head, the Christmas party can only cost £75 per head.
- Plus ones are allowed (partners/spouses or members of the employees’ household);
- If you exceed £150 by even 1p then you will miss out on the tax relief, and the cost will become a taxable benefit.
- VAT can be reclaimed on the cost of the party if all staff attend;
- Client entertaining is not allowable for tax relief;
If you run a limited company with directors only e.g just yourself, or yourself and a partner, then all of the above still applies as you are employees of the business. So make sure you get yourself some sort of Christmas meal or night out through the business!
You won’t get to do this for yourself if you are a sole trader as you aren’t an employee. However, if you have employees then you can treat them and save tax.
To give an idea of what we are doing at Kennedy Accountancy, we are going axe throwing during the day (not at each other hopefully!) then out for a Christmas lunch.
So go out, enjoy yourselves and save tax!
If you want to buy your team a Christmas present, make sure you do it in such a way that it doesn’t become a taxable benefit on them. They may not feel full of festive cheer if your Christmas gift to them comes with a tax tag on it.
Cash gifts are taxable as earnings in the normal way; through payroll and fully taxable. However, HMRC have come up with another exemption to allow employers to treat their staff without it being a taxable benefit.
The exemption is called trivial benefits and works if a gift to staff is under £50. In this case the business can claim tax relief on the gift, and the employee doesn’t have to pay tax on receiving it.
The finer details are as follows:-
- If the gift exceeds £50 then it becomes fully taxable as a benefit;
- The gift can’t be given as a reward, and it can’t be expected as part of an employee’s contract;
- It can’t be cash, or vouchers that can be converted into cash. Normal gift cards and online vouchers are fine;
- Some ideas – wine, chocolates, vouchers, clothes…the list is endless as long as you spend within £50 at a time;
- There is no limit on how many gifts you can give to employees in a tax year e.g. you could give 2 x £50 vouchers if they were bought separately;
- If you are a director then you can buy yourself a gift from the business too, however you have a maximum limit of £300 in a tax year. So for example 6 x £50 bottles of wine…just an idea!
Hopefully this gives you some ideas on what is achievable when treating your teams this Christmas, in a tax smart way!
If you have any questions on this blog or on your individual circumstances then drop me an email email@example.com or reach out on Instagram @kennedyaccountancy. Always happy to chat!