It may feel like summer has only just come to an end, but soon the winter nights will be drawing in and Christmas is now less than 100 days away.
As companies start thinking about how to reward their staff and clients at this time the information below sets out in brief terms the tax considerations to avoid unwanted Christmas surprises.
Staff Christmas parties
Christmas parties for staff are exempt from Paye As You Earn (PAYE), National Insurance Contributions (NICs) and reporting provided the party is open to all employees of the company or to all at the relevant company location and the cost per head for the party isn’t more than £150.
The £150 allowance is an annual function amount and therefore if a company holds more than one event per year for its staff (for example a Christmas party and a Summer barbeque) then the aggregate cost per head must not exceed £150. This cost is calculated as the total cost of the party and includes any transportation or accommodation.
There is no restriction on the size of the business in terms of staff numbers and the exemption is per head rather than per employee which allows spouses and partners to also be included without a charge arising. This means that for even the smallest of companies, a single director with no other employees, the company can, for example, pay for the director and his or her spouse to have a Christmas meal up to £300 tax free.
A word of warning however – go over the £150 per head threshold and the total cost becomes taxable as a benefit-in-kind with each employee liable to income tax and National Insurance and the employer charged Class 1A National Insurance. In other words the £150 figure isn’t an allowance that can be offset against the total cost of a more expensive party – if the party provided costs more than £150 per head then there is no tax exemption.
Gifts to staff
Depending on whether or not the gift is of a small and trivial amount gifts to staff in some instances will not be considered as a taxable benefit by HM Revenue & Customs.
For example a bottle of wine or box of chocolates would be acceptable but a case of fine wine or luxury food hamper would not.
Gift vouchers are taxable as a benefit on the employee and a Christmas bonus is simply regarded as ordinary earnings and subject to PAYE and NI as if it were a salary payment.
There is no differentiation between entertaining clients at Christmas rather than during the rest of the year – client hospitality of any kind is not allowable for corporation tax purposes at any time and any VAT incurred cannot be recovered.
Gifts to clients
Companies sending their clients a gift can be common, particularly at Christmas time as the year draws to an end. Business gifts are an allowable deduction for corporation tax purposes provided the total cost of gifts to any one individual per annum does not exceed £50, is not food, drink or exchangeable vouchers and that the gift in some way clearly advertises the name of the company giving the gift.