Expenses and benefits: gifts, social functions and parties
Christmas is a time for many people to relax, but businesses can also use the occasion to reward employees (and themselves) and say thank you to clients.
Although, as always, the rules for claiming tax relief against your Christmas party are pretty strict, HMRC offers a few incentives if you feel festive.
In order to avoid any costly mistakes, we'll discuss what you can claim for your work Christmas party, any gifts, and everything else.
Key Takeaways
To claim Christmas parties as a business expense, you must understand the £150 per person exemption.
As long as they are structured and proof of attendance is provided, virtual events may also qualify.
There should be no more than £50 in value per person for gifts that meet the 'trivial benefits' criteria. Vouchers exchangeable for goods and cash gifts remain taxable.
Are my Christmas parties deductible as business expenses?
You're right, but there are some rules! While HMRC may seem penny-pinching, they allow limited companies (but not sole traders) to hold a social event and claim the expenses against taxes. Exempt events must meet the following requirements:
Be open to all your employees
Be an annual event (such as your office Christmas party, or a summer BBQ).
Cost £150 or less per person
All you need to do is follow these rules.
In the case of a higher expenditure, what happens?
It is important to remember that this is not an allowance, but an exemption. If you serve an extra mince pie for £150 per head, it's taxable.
Are virtual parties deductible business expenses?
Yes, of course. As long as the rules are followed, a virtual or online party can still be claimed. The majority of businesses today work remotely, so if all the other conditions are met, you can host a virtual party.
In a given year, can I claim more than one staff party?
Yes, absolutely, and it's up to you how you allocate the per person allowance. Make a summer picnic £50, a Halloween spook-fest £25 and a festive dinner £75. If you follow the rules and don't go over $150, you can split it any way you want.
Obviously, some costs will be straightforward. It is possible that you booked a meal at a location that charges £60 per person. You'll need to add up every cost and divide it by the number of attendees for others, such as booking a DJ or entertainment.
Is it possible to claim a Christmas party at more than one location?
It is still exempt if an annual event is open to all employees based at one location, even if your business has more than one location. Separate parties can also be arranged for different departments, as long as all your employees are able to attend.
Is it possible to give Christmas presents to my employees?
In addition to food, chocolates, and wine, you can also give 'trivial' gifts to your employees. As allowed expenses, these can be deducted from your tax bill and don't constitute benefits-in-kind.
How do you define a trivial benefit?
Employee benefits are tax-free if you meet all of the following criteria:
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
It is referred to as a 'trivial benefit'. There is no need to pay tax or National Insurance or to notify HM Revenue and Customs (HMRC).
*You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.
Companies with five or fewer shareholders are called close companies.
Examples of trivial benefits
It would be impossible for us to think of every gift that a company might give to its employees during the year, but to give you an idea of what we have seen over the years, here are a few examples.
Clothing to celebrate the birth of a newborn child
Flowers for someone
A food hamper
Prosecco for a birthday
If I exceed my spending limit, what happens?
In the event that your Christmas gift (or whatever the event might be) exceeds £50, then the entire amount becomes taxable. Giving goods as Christmas gifts that cannot be counted as trivial benefits requires:
pay Class 1A National Insurance on the value of the benefit
Bonuses in cash
Giving employees a Christmas bonus counts as earnings, so you must:
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 Zyla Accountants for advice.