TT192: Merry Christmas

With Christmas nearly upon us, we thought it would interest readers to know some of the tax rules that surround some Christmas traditions at work.

Firstly, the Christmas party:

Ordinarily, if an employer lays on a social function then an employee is liable for tax as a benefit on his or her share of the costs but where an annual event takes place (such as a Christmas party) which is open to all staff (or all staff at the same location) then an exemption can apply and no benefit arises.

Firstly there is a limit to the exemption of £150 per annum per head and it is important to remember it is an exemption, not an allowance.

If your Christmas party cost £155 per head you might think that £150 would be exempt and £5 would be chargeable but no! The exemption won’t apply at all and the entire £155 would be considered a taxable benefit.

Also, if you had (say) a summer BBQ at £90 a head and a Christmas party at £100 a head, you could only claim for one or the other, not all of one and a bit of the other. If your BBQ had only cost £50 a head, you could claim for both. This might not make sense but those are the rules and HMRC are strict in invoking them.

Surprisingly the taxman is generous in allowing staff to bring guests and if 12 staff each bring a partner then the cost is divided by 24 to calculate the ‘per head’ amount.

There are no fixed rules but if each staff member brought along their partner and all their brothers and sisters and their partners and tried that to get a ‘per head’ amount, you’d be asking for trouble!

Now a quick look at Christmas gifts to staff:

As you might expect, the Taxman is none too generous here. Any cash Christmas bonus is taxable the same as ordinary pay and so would be a voucher (such as an M&S voucher) redeemable in a store.

You can give your staff what the Taxman calls a ‘trivial’ gift at Christmas and in their internal manual they give examples such as a bottle of wine or a turkey. But it can’t be much more than that.

The manual frowns upon a case of wine or a whole hamper, suggesting these are not ‘trivial’. Each case is looked at on its merits so you may have to hope the taxman is in a good mood!

If all else fails and you want to splash out and really treat your staff, you can agree with the Taxman that you will pay the tax liability of your staff through what is known as a PAYE Settlement Arrangement (“PSA”).

So even at Christmas, careful tax planning can avoid unpleasant surprises. If any of the above raises question, please get in touch with your Barnes Roffe LLP contact partner. Merry Christmas!

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