Christmas Specials, Courtesy of the Tax Man

What can employers claim in respect of an annual Christmas bash?

Did you know it is perfectly legal to claim for the cost of the annual Christmas bash, or certain gifts to staff and customers? Spread a little Christmas cheer and get tax relief on the expenditure. What’s the catch we hear you say?

Our thanks to local accountants Robson Laidler LLP who have set out what you can and cannot claim for; here’s what they have to say about the matter.

“If you are organising a well deserved works party this Christmas we have sketched out below some of the current reliefs available.

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes, but the following guidelines must be followed:-

1. The event must be open to all employees at a particular location.

2. The cost is only tax deductible for employees and their partners (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.

3. An annual Christmas party or other annual events offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. Partners and spouses of staff attending are included in the head count when computing the cost per head attending.

4. All costs must be taken into account, including the costs of transport to and from the event or accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring. No deduction will be allowed for the £150 exemption.”

And a final note on gifts to employees.

“Employers may find the following Revenue concession useful - we have copied the note directly from the HMRC handbook:-

"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. All of these gifts are considered to be trivial and as such are not taxable. 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."

One final caution regarding VAT and staff gifts. VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are zero rated for VAT purposes!

Merry Christmas!