There is an exemption in tax legislation from employee taxes where an employer hosts an annual event. Although it could be held at any time of the year, it has to be an annual event that is made available to all employees, or all in a particular location where an employer has more than one location. The cost must be less than £150 per head (not per employee).
All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include things like entertainment, food and drink, transport and accommodation, VAT, etc. In arriving at the ‘cost per head’ the total expenses should be divided by the number of people attending, which may also include non-employees.
Caution should be exercised. If the cost of £150 per head is exceeded, then the whole amount will become taxable, not just amounts over £150.
Time for a virtual Christmas Party?
This year, more than ever, bringing employees together and saying thank you is so important. HMRC has now confirmed that where all normal conditions are met, virtual events can be included when considering the £150 exemption. So how about considering a virtual Christmas party?
A simple example provided by HMRC in their guidance is as follows:
A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.
And what about small Christmas gifts?
Since April 2016 there has been a statutory definition of what is classed as a “trivial benefit”. An employer could consider making a small gift to the employee if all of the following conditions are met.
· The benefit is not cash or a cash voucher
· The cost to provide does not exceed £50
· The benefit is not provided as a contractual entitlement
· The benefit is not provided in return for a normal service (or services) expected by the employee – e.g hitting a pre-set performance target
So whilst you can’t just give your employees £50 cash tax free, you could consider giving them a store voucher that is only exchangeable for goods, or flowers, hampers, a turkey at Christmas, etc. Just watch the limit and don’t go over the £50, as all amounts will then become taxable.
Is a trivial benefit just for Christmas?
In short, no. More than one trivial benefit can be provided during the year (but not at the same time); so you could consider that bunch of flowers for your employees’ birthday or on the arrival of a new bundle of joy without worry.
However, where trivial benefits are given to a director, office holder or members of their families or households, unsurprisingly, there as an overall limit of £300 per annum.
As always, if in doubt, ask your accountant and they should be able to help you with the nitty gritty.