Employer tax tips for the festive season

Chris Campbell

Chris Campbell

Tax Senior Manager

Christmas Parties and Gifts

With the festive season nearly upon us, this is the time when many employers think about organising Christmas parties or providing gifts to their employees as a gesture of goodwill.  As there can often be tax implications in doing so, it is important to ensure that all the festive cheer does not result in any unexpected tax surprises in the New Year.

Social functions for employees

There is a special tax exemption for annual staff events which often avoids a taxable benefit in kind for the employee if the total cost of all events provided in the tax year does not exceed £150 per head (including VAT).   The cost per head includes any transport or accommodation provided and partners/spouses of employees who also attend are included in the headcount.

If the cost of qualifying events exceeds £150 (including VAT) per head then only those event(s) where the total costs are below £150 (including VAT) remain exempt – any other events are fully taxable.

It should be noted that there are two key requirements of the exemption – only annual events qualify and the event(s) must be open to all employees generally. 

Seasonal gifts

Many employers give their employees a seasonal gift during the festive season, such as a turkey, a bottle of wine or a box of chocolates at Christmas and for many years these types of gifts have been classed as trivial benefits and therefore not taxable on the employee.  HMRC has in recent years introduced a statutory exemption for trivial benefits of £50 per gift and this now means that gifts previously taxable such as gift vouchers or in some cases staff entertaining, can now qualify for the trivial benefits exemption.  There are some exceptions and special rules apply to the provision of benefits to directors and their families.

Cash bonuses

All gifts of money to employees (such as Christmas bonuses) and vouchers convertible to cash must be put through the payroll and are subject to PAYE and Class 1 National Insurance in the same way as normal salary payments.  The employer can, if desired, ‘gross up’ the payment to pay the cost of the PAYE and National Insurance due.

If in doubt, seek professional advice

If you have any queries about the tax implications for your business, we recommend that you seek professional advice and our Employer Solutions team based across Scotland is there to help. Even if there are tax implications, we can advise on potential solutions tailored to meet your specific circumstances.