Christmas is the time when we, as employers, want to give our employees a gift or treat them to Christmas party. It's a good way to show our appreciation and spend time with them outside of work. Whilst our generosity may be welcomed by our employees, HMRC set the rules. Here is some guidance of what can be given without it creating additional costs and providing your employee with a benefit which is reportable to HMRC.
A bonus at Christmas
A lot of employers like to give their employees some additional spending money at Christmas. Any additional payment is treated as pay and is subject to the usual pay deductions. If this is your gift of choice choose a gross amount you want them to have - they will see how generous you are on their payslip as it will be shown separately to their normal pay. Giving them an increase in their take home pay means you will be paying their tax, their NI, their pension contribution, the employer's NI and the employer's pension contribution. This could become very costly and will vary from employee to employee depending on their tax code (not everyone has a standard tax code).
A Christmas Gift
A gift for your employee is classed as a trivial benefit if the total, including delivery, is less than £50. It is not considered to be a benefit and therefore does not need to be declared for tax and NI purposes. It is also tax deductible so can be included in your accounts, reducing your net profit and tax due.
Directors are employees too and, as long as it is a "close" company (less than 5 directors or shareholders) each director can receive trivial benefits of up to £300 each year. These are also tax deductible.
A Christmas Party
This may be Christmas lunch, an evening social or an actual Christmas party. Whatever you do for your staff you can spend up to £150 per head without needing to report it as a benefit. It is also tax deductible in your accounts. However if you spend 1p over that £150 per head then the total amount is taxable. The allowance of £150 including VAT per head applies annually and not per event and only applies to employees and not guests attending. The total cost includes any transport, accommodation, food, drink and entertainment associated with each event.
For the cost of your Christmas Party to be tax deductible it must be open to all employees.
VAT
VAT is deductible from employee gifts (as long as you have a VAT receipt) and from the costs of a Christmas event (but only the employee element if partners have attended).
Summary
However you decide to treat your employees this Christmas be aware of the overall cost to your business, what is tax deductible and what needs to be reported on a P11d.
