07 Nov A Tax Guide for Christmas Parties and Gifts
With Christmas just around the corner, many employers are gearing up to host their annual Christmas parties or give gifts to their employees. Before doing so, it is important to consider and understand the tax and National Insurance implications that come with these festive gestures.
Are staff Christmas Parties and Events exempt from tax?
If you are planning a Christmas party for your employees, it can be exempt from tax, but only if it meets specific criteria.
- The event must take place on an annual basis.
- It should be open to all your employees, regardless of whether they attend or not.
- To qualify as tax-free the cost must not exceed £150 per head. This limit applies to a single event or multiple events throughout the tax year providing the combined cost does not surpass £150.
- If your business has multiple locations, an annual event that is open to all staff based at one location is still considered exempt. Separate parties for different departments are also tax-exempt, provided that all employees can attend at least one of them.
However, should you choose to host one or multiple events within a tax year where the combined cost exceeds the £150 limit or does not meet the criteria, you will have to report it either through your payroll on the employees’ P11D or use a PAYE Settlement Agreement (PSA). The PSA allows the employer to report the event to HMRC and pay the tax and NIC due to HMRC. If you would like advice on how to set up a PSA agreement, then please do not hesitate to contact us.
Are staff Christmas gifts taxable?
As an employer, you might wish to give your employee a Christmas gift such as hampers, bottles of wine or non-cash retail vouchers. These gifts could fall under the trivial benefit in kind exemption, provided they meet certain criteria:
- The gift should not be in the form of cash or a cash voucher, such as a Christmas bonus.
- The total cost of the gift, including VAT and delivery, must not exceed £50.
- It should not be given as part of a contractual agreement or as a reward for services performed as part of an employee’s job duties.
If all of these conditions are met, neither the employer nor the employee will incur tax or NIC liabilities. However, in cases where these conditions are not met, the gift will be taxable and subject to NIC.
Spreading Christmas cheer among your employees is a fantastic gesture, but it’s crucial to be aware of the tax implications to ensure you are compliant with tax regulations. For more information on the tax implications of Christmas parties and gift-giving contact our payroll manager, Geoff Campbell, by emailing geoffc@dhco.co.uk or call 01573 225082.