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Tax Savings at Christmas

03 November 2017

At this time of year many employers give their staff ‘a little something’ to say Merry Christmas.  The trick is to make sure you do this in the most tax efficient manner!

A common option is the Staff Christmas Bonus, which unfortunately is the least tax efficient method (albeit possibly the easiest!), with the employee suffering income tax and national insurance on the bonus and the employer also incurring national insurance costs.

The Staff Christmas Party is also common and, provided this meets certain qualifying conditions, (see below), this can be tax free.

Christmas gifts to staff (such as chocolates, wine or other goods) can also be very tax efficient if they meet the new ‘trivial benefit’ rules as set out below, but be sure to avoid gifting cash vouchers as these are taxed in the same way as bonuses.

Staff Entertaining Exemption

To be exempt, the party must be all of the following:

  • £150 (including VAT) or less per head
  • an annual event
  • open to all employees 
  • not part of a salary sacrifice agreement

Not all employees need to attend the party but it must be open to all who wish to. You can hold separate functions for different departments so long as all employees can attend at least one. Also, if your business has more than one location, a separate party for all staff at that one location would qualify.

To determine the total cost of the party you need to include VAT and the cost of transport and overnight accommodation if these are provided to enable employees to attend. The total cost is then divided by the total number of people (including non-employees eg family members) who attended in order to arrive at the cost per head.

Note that the exemption only applies to the first £150 of staff events. If, for instance, you have a Christmas party costing £120 per head and a summer barbeque costing £50 per head, only the Christmas party would qualify for exemption. The BBQ would be taxable in full on those employees who attended unless it qualified under the trivial benefits exemption.

Trivial Benefits Exemption

You don’t have to pay tax on the benefit of the gift if all of the following apply:

  • each gift costs £50 or less per employee to provide
  • it isn’t cash or a cash voucher
  • it isn’t a work or performance related reward
  • the terms of their contract does not mention the provision of the gift
  • it isn’t part of a salary sacrifice agreement

Most directors are further limited to a total of £300 of trivial benefits per year.

If you would like more information regarding the above please contact

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