With the festive season approaching you may be thinking about treating your employees to a Christmas party and/or gift and need to know the tax implications of these. The good news is that these can be exempt from tax and National Insurance for the employee and also tax deductible in the company as long as certain criteria are met.
As an employer you can have an annual (yes, just one!) staff party or function as a tax-free benefit for your employees providing:
- The total cost per head must not exceed £150 gross (VAT inclusive). If the cost exceeds this limit then the whole cost would be taxable!
- The above cost must cover any extra costs such as transport and accommodation
- The event must be primarily for entertaining staff
- All employees and directors must be invited, they do not have to attend but must be invited
The total costs will be deductible for Corporation tax and you can also reclaim back the VAT incurred, although this will be restricted where you are also entertaining customers or suppliers.
Trivial Benefits (Gifts)
If you would like to give your directors and/or employees a gift (benefit), whether it be a turkey, a hamper, some fizz, a meal out or something else the rules are the same.
The trivial benefit exemption means that any benefit (gift) provided to a director or an employee, which meets the following criteria, will be exempt from tax and National Insurance. Better still the cost of the benefit is a tax deductible expense in the company so you also save Corporation Tax.
All of the following conditions must be met:
- The cost to the employer of providing the benefit must not exceed £50 gross (VAT inclusive). If the benefit exceeds the £50 limit, the whole benefit would be taxable, not just the amount exceeding the £50!
- If it is a benefit provided to multiple employees, the average cost per employee must not exceed £50 gross
- The benefit cannot be cash or a cash voucher
- The benefit could be a gift card, as long as it cannot be exchanged for cash
- The employee cannot be contractually entitled to the benefit
- The benefit cannot be provided as recognition of particular services performed by the employee as part of their duties
For close companies (a limited company with 5 or less shareholders), any director can have up to a maximum of £300 worth of trivial benefits in the tax year.
So, a number of trivial benefits all totalling £300 or less will be exempt from tax in any tax year.
As a director, there are very few ways that you can take money out of your company completely tax free, but this is one of them so make sure you make the most of it!
The good news is that this can happen all year round it doesn’t just have to be at Christmas! Here are some examples of the type of trivial benefits that are allowed:
- Taking a group of directors and/or employees out for a meal to celebrate a birthday
- Giving a birthday present
- Flowers on the birth of a new baby
- A bottle of champagne to congratulate an engagement or wedding
- A party for employees, which may fall outside of an annual party £150 exemption
For all staff entertaining and trivial benefits provided you must ensure that you keep sufficient records and documentation to demonstrate the amounts are within the limits.
Claire Hughes, CH Accountancy Ltd