As with gifts, the provision of a staff Christmas party would generally be considered as staff entertainment, and therefore a taxable benefit for the recipients.
However, there is an annual events exemption, which if the annual event meets certain conditions, is exempt from tax.
The conditions that all need to be met are:
This exemption can be spread over different events throughout the tax year, such as a summer BBQ and a Christmas party. However, the cost per head of both events combined must not be over £150. Where this is the case, only one event will be eligible for the exemption, and the other will need to be reported to HMRC. This is typically best done through a PAYE Settlement Agreement (PSA) as it means the employer picks up the cost of tax/NIC on a grossed-up basis after the end of the tax year, rather than it impacting each employee’s tax affairs.
The cost per head is reached by considering every cost that goes into the event such as the venue, food, and drinks. It will also include any ancillary overnight accommodation and transport costs provided, and the amount must include VAT. The total cost is then divided by the total number of invitees/attendees, including any non-employees (spouses or plus-ones).
If your business has more than one location, an annual event that’s open to all staff based at one location is still ‘open to all’. You can additionally arrange separate parties/events for different departments at appropriate locations where all of the employees can attend at least one of the arranged events.
Normally, providing your employees with a gift of any sort would in theory be a taxable benefit. However, HMRC has legislated it is possible to utilise the ‘trivial benefits’ exemption to exempt such “gift costs” where all of the following criteria apply.
The trivial benefits exemption can apply to any other gifts provided to employees throughout the tax year where the conditions are met. This could apply to birthdays, weddings, and new baby presents etc. They cannot apply to any thank-you gifts to employees for doing a good job, on the basis that these would be classed as a reward for service.
Care also needs to be taken, as HMRC can and may challenge anything provided regularly or part of a chain of provisions under the trivial benefit exemption, as it might create a ‘legitimate expectation’ to employees. An example could be month end or pay-day events. HMRC can challenge that this expectation means that the trivial benefit exemption will not apply.
It is not a £50 per tax year limit. It is a £50 “per the reason” limit. Therefore, employees could receive multiple gifts per year for separate reasons and them all be tax-free where they meet the qualifying conditions.
However, there are additional rules to consider for directors and other office holders of ‘close companies’, who are subject to an annual cap of £300. Where the trivial gift/benefit is provided to a member of the director/office holder's family or household who is not an employee of the employer, this trivial gift/benefit will count towards the £300 exempt amount. Where the director’s or other office holder’s family or household member is also an employee of the company, they will also be subject to their own £300 cap.
Where you wish to provide any gifts above £50 in value, this can still be done without a taxable benefit arising for the employee. However, all the costs (not just the amount in excess of £50) would be best included in the annual PSA (as it is unlikely that an employer would want to include these costs on Form P11D, given the employer typically wishes to pick up the tax liability.
The taxation of employment benefits is a complex area. Ensuring you comply with all the compliance obligations and tax liabilities is essential.
Mazars can help you with the following:
If you have any queries or wish to discuss any of the above matters further, please get in touch with your usual Mazars contact, who can put you in contact with one of our National Employment Taxes Team.
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