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.
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.
Key Takeaways
- Understand the £150 per person exemption for Christmas parties to be eligible for claiming it as a business expense.
- Virtual events may also qualify, provided they are organized in a structured manner and proof of attendance is supplied.
- Gifts should adhere to ‘trivial benefits’ criteria with value not exceeding £50 per person. Cash gifts and vouchers exchangeable for goods remain taxable.
Can I claim my Christmas party as a business expense?
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:
- Be open to all your employees
- Be an annual event (such as your office Christmas party, or a summer barbecue)
- Cost £150 or less per person
As long as you comply with these rules then you are good to go.
What happens if I spend more?
One of the key things to remember is that this is an exemption, not an allowance. The minute that extra mince pie tips you over £150 per head, the whole thing becomes taxable.
Can I claim a virtual party as a business expense?
Yes. A virtual or online 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 virtual party.
Can I claim for more than one staff party in a year?
Yes absolutely, and it’s up to you how you allocate the allowable £150 per person throughout the year. Spend £50 on a summer picnic, £25 on a Halloween spook-fest and then £75 on a great festive dinner. 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 entertainment, so you’ll need to add up the cost of the whole event and then divide it by the number of people attending.
Can I claim for a Christmas party at more than one location?
If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.
Can I give my employees a Christmas present?
You can give what HMRC terms ‘trivial’ gifts to staff, such as food, chocolates, or wine. These are allowable expenses that you can offset against your tax bill and aren’t a benefit-in-kind for the recipient.
What counts as a trivial benefit?
You don’t have to pay tax on a benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.
*You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.
A close company is a limited company that’s run by 5 or fewer shareholders.
Examples of trivial benefits
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:
- A hamper to celebrate the birth of a new child
- Flowers for someone in hospital
- A cheese hamper
- A set of driving gloves for an employee passing their driving test
- Champagne on a birthday
What happens if I go over the spending limit?
If your Christmas gift (or whatever the event might be) goes over the £50 limit then the whole amount become a taxable benefit. If you give goods as Christmas gifts, and they can’t be counted as trivia; benefits, you must:
- report on form P11D
- pay Class 1A National Insurance on the value of the benefit
Cash bonus
Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to:
- add the value to your employee’s other earnings
- deduct and pay Pay As You Earn (PAYE) tax and Class 1 National Insurance through payroll
Visit HMRC for more information www.gov.uk/expenses-and-benefits-christmas-bonuses or talk to a member of our team.