Holiday cheer without the tax fear: What employers need to know

As the festive season approaches, businesses are gearing up for Christmas parties and gift giving. While spreading holiday cheer is good for employees, for employers, it’s equally important to understand the tax implications of these festive expenses.

Whilst HMRC provide some exemptions that can help you celebrate without the fear of a tax liability arising, these are limited and have strict qualifying criteria, so it’s key that you understand the exemption, so you don’t accidentally fail to meet the criteria.

The £50 trivial benefits exemption

The trivial benefits exemption is a handy tool for businesses looking to celebrate with their employees by providing a small gift. Under this exemption, you can provide employees with gifts costing £50 or less without incurring tax or National Insurance contributions. However, there are a few conditions to keep in mind:

• Cost: The benefit must cost £50 or less per employee.
• Non-cash: The benefit cannot be cash or a cash voucher. A cash voucher is a specific type of voucher than can be exchanged for approximately its face value in cash. A goods voucher is within the scope of the exemption.
• Not contractual: The benefit must not be part of the employee’s contractual entitlement.
• Not in recognition of services: The benefit must not be provided in recognition of services performed as part of the employee’s duties i.e. it should not be given as a thank you for doing a specific piece of work.

The £150 annual events exemption

When it comes to hosting a Christmas party, the £150 annual events exemption is your best friend. This exemption allows businesses to spend up to £150 per head on annual events, such as Christmas parties, without incurring tax or National Insurance contributions. Here’s what you need to know:

• Per head: The £150 is a per head amount, meaning it includes employees and their guests.
• Annual events: The exemption applies to annual events, not just Christmas parties. It can be used for other annual gatherings like summer parties, as long as they take place each year.
• Multiple events: If you host multiple events throughout the year, or you have one expensive event. the total cost per head must not exceed £150. This is important because it’s not just the excess that becomes taxable, but the whole event that caused the £150 to be exceeded.

Making the most of the exemptions

By understanding and utilising these exemptions, you can make your Christmas socialising both enjoyable and tax efficient. Here are a few tips:

• Plan ahead: Keep track of the costs to make sure you stay within the exemption limits. Costs include all ancillary costs like wrapping paper and gift cards, or travel to the annual party, and it will be the gross cost that needs to be monitored (i.e. VAT inclusive) even if you are VAT registered.
• Document everything: Maintain records of the expenses and the number of attendees to support your claim for exemption.

If you would like to discuss the above exemptions in more detail or would like to discuss ways to manage the tax and National Insurance liability arising as a result of exceeding these limits, please get in touch with your usual Larking Gowen contact.

You can find contact details on the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Tessa Brown