For many, the Christmas period marks the end of a busy year and offers the perfect opportunity to reward staff for their hard work with Christmas business gifts or a Christmas party. But business owners need to ensure they are keeping the taxman as happy as their employees to avoid unforeseen charges.
HMRC (Her Majesty’s Revenue Customs) has outlined an exemption for staff parties providing the event is annual, open to all employees and costs no more than £150 per head. If you decide to invite the partners or spouses of your staff, they can benefit from this exemption, so that the effective cost per couple could be as high as £300.
For some businesses, it may not prove practical to hold one single event for all. HMRC has taken this into account. Businesses with more than one site can organise an annual event at one location. Equally they could organise separate events for each location/department providing all employees are eligible to attend one of them.
It is important to note that the £150 per head cost is an exemption, not an allowance. All functions outside the outlined amount are chargeable on the full cost per head, not the excess over £150. The cost limit includes the event costs, VAT and transport and/or overnight accommodation provided in connection with the event.
If you do wish to reward your team with entertaining in excess of the exempt level, without your staff getting a tax charge, we can help you settle the tax in point via a PAYE Settlement Agreement (PSA).
Christmas events for customers, clients or suppliers are not included in the same exemption as that for staff, even if they are present at the same event. The proportion of staff entertainment can be claimed, but full VAT will need to be paid for the cost for the proportion of the bill that was for client or supplier entertainment.
There are also exemptions available on Christmas business gifts for both employees and clients. Exemptions apply on gifts up to £50. As with a staff Christmas party, this amount is an exemption not an allowance – if the cost exceeds the outlined £50 amount, the full amount is taxable.
Generally, there is no limit to the number of business gifts that are given in one 12-month period for employees or clients/customers. but you cannot give more than one business gift on any one occasion, i.e. you cannot give two business gifts up to a £50 value to the same person in one Christmas period. Although, in certain circumstances, there is a limit of 6 gifts per year for directors – it is best to check with a professional advisor if you plan to do this.
Gifts cannot be cash or a cash voucher. For staff, there must be no contractual entitlement to the gift. If a gift is given each year, or is provided to all employees, it does not mean that an employee is contractually entitled to it. Gifts cannot be a reward for specific services and should not be treated as an item of commission on performance.
All events or gifts for staff that exceed the outlined costs must be reported to HMRC so that both the employer and the employee pay the right amount of tax and National Insurance Contributions (NIC) on them. They also cannot be included as part of a salary sacrifice agreement. As with Christmas parties, most employers prefer to pick up the employee’s tax cost on gifts, so again, the PSA is the method to deal with this.
For further advice on tax charges on staff and client gifts and entertainment contact WMT’s Rob Ennis.