Treating your employees over the Christmas holidays (or at any time, in fact!) is a tried and tested approach to building a strong relationship with your team.
But did you know you there are a couple of tax rules to adhere to when delivering these treats?
We want you to enjoy the holidays just as much as your team, so here’s some timely advice for staying on the right side of HM Revenue & Customs (HMRC) this Christmas.
Colloquially called a Christmas party, the rules around parties relates to the total cost of 1 or 2 parties per year.
We have two types of party, one where only employees attend, and one where employees and their direct family (children, parents, siblings) or people who live at the same address as an employee attend.
Unfortunately, if anyone not meeting the above criteria, such as sub-contractors, or girlfriends / boyfriends of employees not living at the same address, this would mean the party, rather than qualifying as a Christmas party, would be entertaining, which means it would not qualify for VAT or Corporation Tax relief.
If your party meets the criteria above, all you need to do is make sure it costs less than £150 per attended (note attendee, not employee). If it exceeds this value, there would be additional PAYE charges.
Moreover, if the party is one where only employees attend, and it is less than £150 per attendee, you are also allowed to reclaim the VAT.
Under PAYE rules, there are two types of gifts, trivial benefits, which do not incur any PAYE charges, and benefits in kind, which do.
So, to stay on side with HMRC, your gift should be a trivial benefit. To do this, all you need to ensure is:
- the gift is below the value of £50; and
- it isn’t cash or a cash voucher; and
- it isn’t a performance-linked reward; and
- it isn’t in the terms of the employee’s contract.
If the gift does not meet all the above criteria, it must be reported as a benefit in kind to HMRC and tax must be paid as appropriate.
An easy-to-understand example of a suitable gift
Your company decides to provide each of its employees with a turkey at Christmas. You have 10 employees and the total bill for the turkeys comes to £450.
Rather than calculate the value of each individual turkey, you can use the average cost, which is this case is £45 per turkey.
This means that the gift meets all the criteria above, making it a trivial benefit that does not incur any additional PAYE charges.
If the total cost of the turkeys had been £550, the average cost would have been £55, meaning the gift would have been a benefit in kind, not a tax-free trivial benefit.