Christmas Can Be Taxing

Oh Come, All Ye Faithful

As you will be aware, benefits given to employees are taxable in their hands, unless they are exempted by law or deemed not taxable because they relate to staff welfare and may be considered trivial in nature.

Whether a benefit is trivial or minor is at the discretion of HMRC officers, who are instructed to ignore them as assessment and collection is not cost effective.

Annual parties and functions (provided they are for the entertainment of all staff or a whole division or department) which are held by an employer for its employees are not taxable as employee benefits, on condition that the employer does not make an annual spend of more than £150 per employee (including VAT).  This applies to annual parties, rather than one-offs such as a leaving party.  If you exceed the £150 limit, even by £5, the whole amount is taxable for the employee as a benefit in kind.

Regardless of the effect on employees, staff entertainment is a business expense and is tax deductible.  If a function is for staff and client entertainment, in order for it to be tax deductible, its main purpose must be staff entertainment.

Gold, Frankincense and Myrrh

An employer may give a seasonal, trivial gift without the employee being taxed on it as a benefit in kind.  Examples of "trivial" gifts are: a turkey, a box of chocolates, a bottle of ordinary wine or two, or bouquets of flowers.  HMRC guidance states that you will need to use your objective judgement in considering whether the cost and content of a gift will make it trivial or not.  A seasonal flu jab will also be trivial.  Non-trivial gifts are taxable, unless they are purely personal, such as a wedding present. 

All gifts (trivial or not) are tax deductible for the employer as staff welfare payments.  Employees are taxed on non-trivial gifts as earnings or benefits in kind.

The Real Cost of a Christmas Party