Staff Christmas gifts and parties: A tax guide

As we approach the festive season, employers will inevitably be thinking about rewarding their people by way of employee Christmas gifts and/or a Christmas party. But what are the tax implications of employee Christmas presents, and what do you need to consider before splashing out on staff Christmas gifts?

Tax and staff Christmas gifts

Typically, giving an employee a gift of any sort would in theory be a taxable benefit. Thankfully, HMRC have decided against being a total scrooge in this respect, and it is possible you can rely on the ‘trivial benefits’ exemption.

For a benefit to be trivial it must meet the following criteria:

• The cost of providing the benefit does not exceed £50
• The benefit is not cash or a cash voucher
• The benefit is not provided under salary sacrifice arrangements or any other contractual obligation
• The benefit is not provided as a reward for services

How regularly can we use a trivial benefit?

The trivial benefits exemption can apply to any other gifts provided to employees throughout the year where the conditions are met. This could apply to employee Christmas gifts, Easter eggs, wedding, and new baby presents, etc. They cannot apply to any thank you gifts, as these would be classed as a reward for service.

Care also needs to be taken, as HMRC can challenge anything provided regularly under the trivial benefit exemption, as it might create a ‘legitimate expectation’. An example could be pay-day drinks.  HMRC can argue that this expectation means that the trivial benefit exemption will not apply.

What if the staff gift exceeds this value?

Where you wish to provide any gifts above £50 in value, this can still be done without a taxable benefit arising for the employee. However, these would need to be included in a PAYE Settlement Agreement (PSA), where you, as the employer, would pay the tax due on the benefit, on a grossed-up basis, on the employee’s behalf.

There are additional rules for directors and other office holders of close companies, who will be subject to an annual cap of £300. Where the benefit is provided to a member of the employee’s family or household who is not an employee of the employer, this benefit will count towards the £300 exempt amount. Where the director’s or other office holder’s family or household member is also an employee of the company, they will also be subject to a £300 cap.

Tax on Christmas parties and other annual events

As with staff Christmas gifts, the provision of a staff Christmas party would generally be considered as staff entertainment, and therefore a taxable benefit.

However, HMRC have an annual events exemption, which if the annual event falls under certain conditions, is exempt from tax arising from the benefit provided. The conditions are:

• It is an annual event
• It is open to all employees
• It costs less than £150 per head

Are ‘exempt’ parties only for Christmas?

This exemption can be spread over different events, such as a summer BBQ and a Christmas party. However, the cost per head of both events combined must not be over £150. Where this is the case, only one event will be eligible for the exemption, and the other will need to be reported through a PSA (the cheaper event obviously!).

How is the cost of a Christmas party calculated for tax purposes?

The cost per head is reached by considering every cost that goes into the event such as the venue, food and drinks. It will also include any overnight accommodation and transport costs provided, and the amount must include VAT. The total cost is then divided by the total number of attendees, including any non-employees.

If the business has more than one location, an annual event that’s open to all staff based at one location is still ‘open to all’. You can also put on separate parties for different departments if all of the employees can attend at least one of them.

How we can help with tax on Christmas gifts for your employees?

The taxation of employment benefits such as staff Christmas gifts and Christmas parties is a complex area. Ensuring that you comply with all the administrative obligations and plan to minimise tax liabilities is essential.

We can help you with the following:

• Reviewing existing employees’ remuneration packages for tax and NIC efficiency
• Planning flexible and tax efficient remuneration packages for key employees within your organisation
• Non-cash benefits to assist employees with their cost of living
• Setting up and submitting a PSA for non-exempt benefits

We would welcome the opportunity to assist you with any planning and compliance matters so please do contact us using the form below.