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With Christmas around the corner, you probably have some ideas in mind how to treat your employees: maybe you’ve prepared some gifts or you’re throwing a Christmas party. Whatever you decide, remember that some of your planned activities might be taxable.

Gifts

One of the most popular ways of treating employees is by giving small seasonal gifts. Here is what you have to know about it:

• Gifts of less than £50 is usually not taxable.
• Gifts of more than £50 are taxable and have to be reported to HMRC (use P11D form or PAS).

Some employers also choose to give vouchers, vouchers exchangeable for cash or services or cash bonuses as presents to their employees. However, you must keep in mind that such gifts are taxable as earnings and have to be reported on P11D form.

Parties

Cost per person

If you decide to throw a staff party, you should do some calculation and planning beforehand to avoid being taxed.  The cost of the party is considered to be the total cost of the celebration and includes all expenses such as venue, accommodation, entertainment, food and drinks, etc.

If the party that you are organizing meet all of the below-mentioned conditions, then it is tax-exempt and also doesn’t have to be reported to HMRC:

• It is an annual event
• It is open to all employees (or employees based at one location or belonging to one department)
• The cost per person is no more than £150

The £150  limit applies to everyone who attends the party. That is, if your employees can bring guests, then the limit applies to them, too.

Also, it is important to note that £150  limit is an exemption and not an allowance, so if the cost per person exceeds  £150, then the full cost of the party is taxable.

Multiple parties

Tax exemption rule applies even if you throw several annual events per year. However, the maximum combined cost has to remain £150 per person. If you have used the whole limit in one of the parties, then any other additional event will be taxed on the full cost.  

Reporting

What you need to report depends on various factors, such as if it’s an annual event and it’s open to all the employees of the company, if the cost exceeds the non-taxable limit, how many parties a year you organize, etc.

If your party doesn’t meet the criteria for being exempt, you have a duty to report it to HMRC and pay NI contribution.

• The cost must be reported in the employees’ form P11D.
• The cost is taxable by income tax paid by the employee and the Class 1A national insurance paid by the employer.

However, the cost for staff parties is considered to be an allowable expense and can be deducted.