Tax guide for Christmas parties, Christmas gifts and Christmas bonuses

Giving Christmas gifts to team members

Read this post before splashing out on a Christmas party, buying Christmas gifts, or giving Christmas bonuses.

As December rolls around, small business owners start thinking about organising a Christmas dinner for their team members, buying Christmas gifts to say thank you or giving Christmas bonuses to high-performing employees. However, before taking any actions, it pays to understand the tax treatment surrounding Christmas parties, Christmas gifts and Christmas bonuses.

Christmas parties: the £150 per head exemption

HMRC allows business owners to claim £150 per head exemption as a legitimate business expense provided that you follow the rules:

  • The event must occur annually and is available to all employees, including directors. Shareholders who are not directors or employees do not qualify.
  • The maximum cost is £150 per head including VAT and all expenses such as food, drink and transport.
  • Staff can bring their spouse or partner and the guests are also subject to the same £150 per head exemption.
  • You can split the £150 per head exemption into multiple events but considering the logistics involved, most business owners choose to use this for a sumptuous Christmas dinner.

If the event cost exceeds £150 per head, even if you only exceed it by £1 per head, you must report the whole amount to HMRC, pay National Insurance, and complete form P11D for each employee.

Christmas gifts: are they trivial benefits or aren’t they?

Christmas gifts can be considered as trivial benefits if they are:

  • Less than £50 per head (inclusive of VAT)
  • Not considered as a reward for the employee’s work or performance
  • Not stated in the terms of their contract

Please note that cash or vouchers which can be converted to cash are not considered as trivial benefits. This means they are subject to tax and National Insurance.

Christmas bonuses: you must pay tax and National Insurance

Any cash that you give to employees as a Christmas bonus is considered earnings. This means your payroll staff must add the value of the bonus to the employee’s other earnings, pay PAYE and also National Insurance.

Tax is a complicated subject

Unless your work requires you to deal with corporate tax daily, you may not be aware of how tax can have an impact on your bottom line and how you can go about being tax efficient. This is where our Tax Accountants can help – we stay on top of tax issues so you don’t have to.

Our tax accountants stand out among competitors because:

  • We have a wealth of specific tax knowledge.
  • We take time to understand your situations, so our tax and tax planning advice is specifically tailored to your business.
  • We use all the legitimate tax-saving models available to your business.
  • We do not practice creative accounting that will put you in trouble with HMRC.

If you need a helping hand to get a firm grip on your business tax, give us a call today on 020 7636 9094 or get in touch via our Contact Us page.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.