It’s that time of the year again when every business opens their wallet to show appreciation to their staff. Don’t be caught by the tax man!

How much can you spend per employee for the Christmas party without being caught out?

There is a tax exemption for employee entertaining if the event meets the following conditions. The events is:

•  an annual party or social function, e.g., Christmas party
• opens to all employees 
• cost does not exceed £150 per employee (inclusive of VAT)

What this Means?

A business can pay up to £150 including VAT – claim a tax deduction and reclaim the VAT, unfortunately this exemption is for employees only not applicable to guests

The limit of £150 per head applies to all attending the party, not just employees. So, if employees are bringing guests, the total cost should be divided by the total number of employees and guests.

A taxable benefit will arise if either the limit is exceeded, the function is not open to all staff or it is not an annual function.

Please note that £150 per head limit, if a business spends over the £150 and the full cost becomes taxable.

What about the VAT?

VAT tax relief is only available to employees, so if guest/partners are invited then you can only re-claim the proportion that relates to your employees.

Should I give Cash or Vouchers to Employees?

All cash gifts and vouchers  are taxable .

What about Gifts to Employees?

Trivial benefits i.e those costing less than £50 to provide, which is not cash or a cash voucher and which is provided for a non- work reason e.g a birthday present or a bottle of champaign, for social events. There is an annual cap of £300 for directors

Gifts received from Third Parties

None cash gift from third parties up to £250 per tax year from the same donor.

Giving Gifts to Suppliers and Customers

Gifts to suppliers and customers are not deductible . The are exceptions:

• For example, if the gift has conspicuous advertising on it such as an umbrella or diary and is less than £50
• Gifts to charities are tax deductible
• If you are giving away a product you make, this is classed as promotion

What if am a single director company?

If the business has no employees, the rules above does not apply

Directors entertainment expenses don’t qualify for tax relief or VAT, however if the directors entertainment takes plays away from their usual place of work, e.g on a business trip , them the VAT paid on cost of travel , meals and accommodation can be reclaimed, there is a possibility for tax relief.

Conclusion

In Summary, Christmas gifts can be given, and together with staff parties as long as they are not over £50, and the party is less than £150 per head.