With the Christmas festivities approaching and the dilemma for some as to whether the staff Christmas party goes ahead, here is a quick reminder of the tax rules for the current tax year.
Is a Christmas party tax exempt?
Christmas parties are not a taxable benefit on your employees providing the following conditions are met:
- It is an event that you usually hold on an annual basis
- It is open to all employees
- The cost is £150 or less per person
HMRC have confirmed that these not only apply to “in person” functions but online or virtual events too.
What is included in the £150 exemption?
The £150 limit applies to the cost of the whole event including VAT. It includes food, drink, entertainment, taxis, and accommodation.
Note, the £150 is an exemption not an allowance; if the cost per person goes over the exemption by even £1 it becomes reportable as a taxable benefit in kind!
Can my employees invite a guest?
The £150 exemption applies to directors, employees AND any member of their family and household who attend as guests.
To work out if the cost is exempt, you can take the whole cost and divide this by the total number of guests, not just your employees.
If I don’t provide a Christmas party, do I lose the £150 exemption?
No, HMRC allow a £150 exemption per tax year for any annual event provided it meets the conditions above. If you decide that you aren’t going to go ahead with your Christmas party then you can look to organise a different annual event for your employees, such as a summer BBQ.
Gifts for employees
Cash and vouchers
If you pay a cash bonus to your staff, this is taxable as earnings as are any vouchers that are exchangeable for cash.
Non-cash vouchers (that can be exchanged for goods and services) are a taxable benefit in kind and must be reported on a form P11d.
Gifts
If you give your employee a gift that is no more than £50 it may fall under the trivial benefit rules. This means it is tax exempt providing the following conditions are met:
- Costs less than £50 including VAT
- Not be cash or a cash voucher
- Not be a reward for their work or performance
- Not be in the terms of their contract
Like with the £150 exemption, if the gift value goes above £50 then the whole gift is a taxable benefit in kind and will be reportable on a form P11d.
Christmas gifts for Clients, Customers, Suppliers and Sub Contractors
Unfortunately, gifts to all the above fall into the category of entertaining by HMRC and are not allowable for tax.
The business can still pay for these gifts, but the cost will not be deductible when your annual business tax return is prepared.
Tip – If you can incorporate some form of advertising into the gift, they become tax allowable!
There is an app for everything! A well-used cliché but also a truth, and never more when it comes to accounting software. There are providers a-plenty: Xero, Sage, QuickBooks, Freeagent and ClearBooks. Even banks are getting on board, providing dedicated tools to analyse bank transactions for business purposes. In fact, HMRC’s Making Tax Digital compliance software list has over 400 software apps available from a large number of suppliers.
Millions of households are facing a rise in energy costs, alongside increases in the cost of council tax, water bills and other utilities and there is a warning of fresh energy bill price rises in October. Energy prices have been affected by the Ukraine war and pressure on suppliers. There are continuing delays and shortages on a wide range of goods businesses need to function properly.
