{"id":518,"date":"2011-10-05T19:30:26","date_gmt":"2011-10-05T18:30:26","guid":{"rendered":"http:\/\/www.forestsoftware.co.uk\/blog\/?p=518"},"modified":"2024-08-20T12:13:33","modified_gmt":"2024-08-20T11:13:33","slug":"tax-and-christmas-parties-for-small-busineses","status":"publish","type":"post","link":"https:\/\/www.forestsoftware.co.uk\/blog\/2011\/10\/tax-and-christmas-parties-for-small-busineses\/","title":{"rendered":"Tax and Christmas Parties for Small Businesses"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes : <\/span><\/span>

Tax and Christmas Parties for Small Businesses<\/h1>\n

As I write this (at the start of October) the Christmas season is approaching and many businesses are starting to make plans for staff parties (possibly prompted by emails from venues offering Christmas works parties) or even bonuses and gifts. \u00a0I thought I’d like to make you aware of the various tax rules surrounding this issue in the UK as they currently stand (2011 – checked and updated slightly in 2024).<\/p>\n

Christmas parties<\/strong><\/p>\n

Parties can be a tax-efficient way of rewarding employees. This is because, according to the HMRC<\/a>, \u00a0employees and their partners do not pay tax and national insurance on any parties they attend if the cost to the business is less than \u00a3150 per head in the tax year (starting 6th April). The cost of the function includes VAT and the cost of transport and\/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the\u00a0total\u00a0<\/strong>number of people (including non-employees<\/strong>) who attend in order to arrive at the cost per head.\u00a0The event must be made available to all employees or (if you have more than one location) all those at a location.<\/p>\n

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Photo by cottonbro studio: https:\/\/www.pexels.com\/photo\/people-toasting-wine-glasses-3171837\/<\/figcaption><\/figure>\n

There are some things you need to be aware of though. If the cost per head of a single<\/strong> party is greater than \u00a3150, then the whole amount would be subject to tax and NI.\u00a0 For example, if the cost of a party averages out to \u00a3175 per head the employee is taxed on the full amount (and if they have a partner then they would be taxed on a benefit of \u00a3350). In another scenario if the employer laid on 3 parties over the course of the year costing \u00a3100 per head then \u00a370 per head then \u00a345 per head, then tax and NI would be levied on the \u00a370 party. Though the \u00a3100 and \u00a345 parties would be covered by the \u00a3150 annual exemption, the \u00a390 party wouldn’t and so the whole event was taxable. This page http:\/\/www.hmrc.gov.uk\/manuals\/eimanual\/EIM21691.htm<\/a>\u00a0has further examples of when parties may not qualify for the exemption.<\/p>\n

Cash gifts and bonuses to employees<\/strong><\/p>\n

This is a little easier to understand and are normally, cash gifts and bonuses are treated as normal pay and subject to tax and National Insurance (NI) in the normal way. The payment should be put through the payroll and tax \/ NI deducted at source as with the normal pay. This also applies to any vouchers you give that can be exchanged for goods or services.<\/p>\n

However, gifts to employees that can be considered trivial benefit<\/a>s such as a\u00a0turkey, ordinary bottle of wine or box of chocolates<\/em> will not need to be declared on form P11d as long as the cost of the gift does not exceed \u00a350. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.<\/p>\n

If your business decides to give employees more substantial gifts, such as larger hampers or gift vouchers, these will be subject to tax and NICs. The value of the gift must be reported on the employee\u2019s P11D form and will be treated as a benefit-in-kind, subject to tax and NICs.<\/p>\n

In such cases you should treat all the factors objectively and use your judgement but remember that you may need to justify your decision to the HMRC.<\/p>\n

Common Pitfalls to Avoid<\/strong><\/h4>\n

When planning your Christmas party, there are a few common pitfalls to be aware of to ensure that you stay within the rules:<\/p>\n