Annual Parties and Seasonal Gifts
We will shortly be approaching the time of year when Christmas parties are being discussed and planned. Father Christmas is guaranteed to be jolly, just hope the taxperson will be too and does not chase your employees! Perhaps this is an appropriate time to remind ourselves of the rules!
There is a £150 per person tax exemption (inclusive of VAT) so long as:
- the event is an “annual” one, eg Christmas party or Summer barbecue (the amount covers the full year, not per event). If you have two or more events you need to be careful*
- the event is available all employees generally, or at a particular location if there is more than one location
- those attending are employees and their partners. Self-employed or those in a business partnership are not covered (as they are not “employees”) but Directors of limited companies are so long as they are at the same event
- the expenditure is supported by invoices/receipts and cannot just be withdrawn in cash!
- the cost per head is simply calculated by taking the full cost and dividing by the number attending (including partners)
- taxis/transport to and from the event, accommodation and all other costs are taken into account in the calculations
*If the combined cost is less than £150 there are no problems. If the cost per head exceeds £150 the whole amount will be taxable (so watch that free bar!)
In general, if the event is open only to employees and their partners then the cost will be allowable for tax purposes. Input VAT incurred on employee entertainment can be recovered. However, the definition does not includes partners. If partners attend the event, then the amount of VAT reclaimed must be apportioned.
Any gifts paid in cash (or vouchers that may be used in one or more shops/stores) will be taxable on the employee.
An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. These gifts will be classed as “trivial” and as such not taxable. If the gift extends beyond one of the items mentioned above, for example from a bottle or two to a case of wine, or from a turkey to a Christmas hamper, then the gift may be deemed as taxable! The amount at which a gift becomes “not trivial” has not been defined so a reasonable approach would be required.
Any gifts given to an employee by a third party due to contact throughout the year will not be taxable so long as:
- the gift is not provided by the employer, or a person connected with the employer
- the gift is not in cash or in vouchers or securities that can be converted into cash
- the total cost to the donor of all eligible gifts to the employee in a tax year does not exceed £250 (including VAT)