With COVID restrictions lifted many businesses will have organised their Christmas party but they need to be aware of the possible tax implications on this and on the making of gifts to staff.
Staff Parties
Provided your function meets certain conditions it is free of tax and national insurance contributions. It should be annual event and must be open to all employees and not exceed £150 per head (ph) including VAT. The total cost of the party is the whole cost of the event, from the start to the end and it includes food, drink, entertainment, taxis home, overnight accommodation, etc.
The limit of £150 per head applies to all those attending the function, not just employees. So, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests. It does not have to be a single function, the £150ph can be across separate locations and departments provided all employees have opportunity to attend one.
However, be aware that If the cost goes above £150ph the whole amount is taxable, not just the excess. This may mean your employee has to pay the relevant tax although there is also a grossing up exercise that can be used to avoid this.
If you don’t use the full £150ph, the unused element could be spent on another staff function, say in the summer, eg a staff barbeque. One way to ensure you don’t fall foul of the limit is to ask staff to make a small contribution to the costs to cover any excess.
Staff Gifts
These can fall under Trivial Benefits rules which allows you to make gifts provided they are not contracted, up to £50 (incl VAT) per annum per employee, and where the gift is not for services performed. Be aware that if the cost exceeds the £50, the whole benefit is taxed, not just the excess. For Directors, office holders and their families the benefit is capped at £300 per tax year.
The above is a brief guide to what is allowable, if you want further information then please contact Carla Hobby on 01202 715950.
This article is featured in the November issue of the Dorset Business Focus magazine. Read on the online version here.