Tax & admin · 30 November 2017

HMRC seasonal rules allow employers to throw staff a tax-free Christmas party

 allowance that can be used to subsidise food, drink, travel or accommodation
The seasonal allowance can be used to subsidise employee food, drink, travel or accommodation

Smaller employers have been reminded that in the run up to Christmas, HMRC’s seasonal gift rule allows bosses to treat their staff to a tax-free Christmas party, up to the value of £150 per employee.

The Institute of Chartered Accountants in England and Wales (ICAEW) has reminded businesses that HMRC’s seasonal gift rules provide a yearly tax-free Christmas party allowance that can be used to subsidise food, drink, travel or accommodation.

For tax-free status to apply to seasonal gifts according to HMRC’s rules, all employee spending must be below £150 per head.

If the £150 limit is exceeded, employers would no longer be entitled to tax-free status, and income tax and national insurance would need to be paid on all business expenditure.

Tax-free Christmas party invites can be extended to employee’s partners as well, providing that the cost per head is kept under the £150 limit.

“The Christmas tax exemption can be enjoyed by businesses of any size, so long as it’s within the £150 budget,” confirmed Sarah Ghaffari, the ICAEW’s technical manager of SME business tax.

According to Ghaffari, as of last year employers may also be able to take advantage of the so-called “trivial benefits” exemption. Under this rule, if an end-of-year gift to an employee costs less than £50, it can be considered trivial, and may therefore be entitled to tax-free status.

“Bosses can now not only treat their employees to a tax-free Christmas party, but add a little gift to that as well,” added Ghaffari.

Cash or cash vouchers are not entitled to tax exemption under HMRC’s seasonal gift and trivial benefit rules, and gifts can only be considered for tax-free status if the cost of providing that benefit to employees doesn’t exceed £50.

Similarly, employee gifts that don’t qualify for tax exemption include those which an employee is entitled to as part of a contractual obligation with their employer (for example, in a salary sacrifice-type arrangement). Neither does tax-free status apply if a gift is given in recognition of a specific service or task performed by an employee as part of their job role.

Ghaffari went on to say: “A Christmas party is a great way to reward staff for hard work, and as a little festive gift, HMRC allow up to £150 spend per employee completely tax free.”

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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