You have probably already booked your staff Christmas party for this year. But have you considered the tax position – or for that matter on presents to staff? Let’s look at the rules to make sure your party will not give you a big tax hangover in the New Year.
An annual event to which all staff are invited will not be a taxable benefit provided the cost per head, including VAT, does not exceed £150. Incidental costs would also be included within this limit such as taxi fares and any hotel rooms that are paid for.
Notice the rule says “per head”, not “per employee”.
The good news is that this means exactly what it says. If there are 20 employees and they all come to the Christmas party with a partner you could spend up to £6,000 without tax being an issue.
The bad news for VAT registered businesses is that VAT can only reclaimed on the amount spent on members of staff. In the above example, £3,000 of the total.
What might be even worse news is that it is the numbers who actually attend that is important. This could cause you a real tax headache if there are, for example, illnesses at the last minute and any of the cost is a fixed sum or there is a minimum charge.
Note that all staff must be invited, even though they do not all have to attend. If you exclude a group (e.g. the administrative staff) the cost will be a taxable benefit regardless of the amount spent per head.
Trivial gifts which are not rewards for employment, and not cash or exchangeable for cash, have traditionally been ignored by HM Revenue & Customs (HMRC). This has long been the case with items such as birthday presents or flowers. Several years ago this was extended to cover presents, such as those you might choose to give your staff for Christmas.
Care needs to be taken with the definition of “trivial”. The strict statutory treatment is that all such gifts are taxable. HMRC steadfastly refuses to attach a monetary value to trivial, however its current interpretation is that an employer can give a turkey, wine or similar small gift and these will not be treated as taxable benefits.
It is also not usually a good idea to give your staff their presents during the staff Christmas party, unless you are sure these presents will not bring the cost per head above the £150 limit. If you give them during the party they are not ignored under the triviality rule, but if you give them separately they are.
The tax issues that can arise from a Christmas party may appear unseasonal, complex and possibly even bizarre. If you ignore the rules, for example by spending £151 and not £150, they can work against you; work with them and the only headache you should have is from the party and not an unexpected tax bill. Happy Christmas!