After a somewhat turbulent year of news, and following some lowkey Christmases in terms of social functions, we expect a number of businesses will be celebrating in style come this festive season. As Christmas approaches, clients often ask “What Christmas expenses can I claim for my business?”. The following guidelines break down the parameters of HMRC’s tax breaks, so you can ensure you’re doing right by your employees and your finances.
Employee gifts: where can you claim tax back?
As a business, if you provide expenses or benefits to employees or directors, you usually have to report it to HMRC and pay tax and National Insurance on them. However, certain items are considered ‘trivial benefits’. These items are totally exempt from tax and are a great way to reward employees given they’re not considered taxable income. A hamper, experience day or bottle of whisky all fall into this category.
Ultimately, you can give anything as long as the gifts or vouchers are:
£50 or less (incl. VAT) per employee
Not cash (or can’t be exchanged for cash).
Not considered payment for fulfilled services (or incl. in their contract)
It’s really important you stick to the £50 cap, otherwise you will be taxed on the total amount, not just the amount over. The good news is you can give an employee up to 6 trivial benefits throughout the year. That’s up to £300 of tax-free gifts for your hard-working team. You just need to keep in mind, you can’t give it in one lump sum, it must be offered in parts.
How much of my Christmas party is tax deductible?
As long as you stick to the following rules, HMRC has fairly generous regulations when it comes to tax breaks for company social events.
Whether you choose to celebrate online or in person, your party must:
Be open to all employees
Cost max £150 (incl VAT) per employee
Not include clients*
The £150 per head cost is calculated using the total cost of the party divided by the number of people in attendance. So, if your party costs £5000, at least 34 colleagues need to have attended the event.
It’s good to know this tax break is not exclusive to just Christmas events. You can split the £150 cap across the year, meaning you could have two parties during the year at £75 per head. Furthermore, if the amount for a party is less than £50/head (incl VAT) you can declare the event a trivial benefit, thus saving the £150 cap for another time. Remember though: each employee has a £300 cap for trivial benefits.
*A client can attend but the £150/head cost must be divided to account for them in the total amount paid.
Stick to the rules.
Whether it’s a trivial benefit or a social function, you must stick to the limits per employee. If you don’t (even if you go over by a single penny) the entire cost of the party or gift is taxable and it has to be reported on your employees P11D as a taxable benefit. Alternatively, the business can elect to pay it under a PAYE Settlement Agreement (PSA) to prevent your employee from paying for their own Christmas present!
However you choose to end the year, now you can celebrate knowing you’re clear on the regulations while getting the most out of HMRC’s tax breaks.
Still want to check you’re in line with HMRC?
Tax advice is sort of our thing. If you want more advice that’s specific to your business, you can get in touch with one of our tax experts here. Sometimes it pays to double-check.
