During the Coronavirus pandemic, many employers had to cancel yearly social events like Christmas parties, but with the world now almost back to normality, many Christmas parties will be going ahead this year as usual.
Some of the merriment may be lost, however, if the party becomes taxable, either for the attendees or, more likely, for the employer. Christmas parties will fall under the Annual Social Functions exemption and can be provided free of income tax and NICs, providing that the following conditions are met:
- The total VAT-inclusive cost of providing the event does not exceed £150 per head (this is applied across all annual events during the year);
- The event is annual; and
- All employees are invited to the event
Be careful – if the £150 limit is exceeded, the event that causes the limit to be exceeded becomes taxable in full, rather than just the excess. Employers can, however, determine which event this is.
Employers feeling the festive spirit may also want to gift their employees with a present. Where a gift is given to employees, it can be provided free of income tax and NIC – again, provided that it meets the following criteria:
- The total VAT inclusive cost of the gift does not exceed £50 (per head if provided to a group);
- The benefit is not cash or a cash-voucher (a store gift voucher is acceptable);
- The employee is not entitled to the benefit as any part of a contractual obligation or pursuant to a relevant salary sacrifice arrangement; and
- The benefit is not provided in recognition of services performed by the employee as part of their employment duties.
The Trivial Benefit Exemption above is available all year round, but is never more appropriate to bear in mind than in the Festive Season, when gifts are provided for no reason other than the occasion. All that being said, it is also worth noting that special rules apply to Directors of close companies and their associates and the quantum of trivial benefits they can receive.
Please contact us if you are unsure or you would like further information on any of the points raised above.
Written by Paige Restall, Tax Assistant.
This article was correct at time of publication.