With Christmas nearly upon us yet again this is a quick reminder of the tax treatment of seasonal gifts and benefits to staff.

Social functions for employees

There is a tax exemption for employee entertaining, but terms and conditions apply. The relief only applies to ‘annual parties’ available to all staff and is set at £150 per head. The figure is inclusive of VAT. If the cost of qualifying parties goes over £150 per head then unfortunately all the costs (not just those above £150 per head) are taxable as a benefit in kind.

Taxis home and any overnight accommodation have to be included in the calculation.

It’s important to note that the amount of £150 per head applies to all those attending the function not just employees. This will come into play if employees are allowed to bring guests.

Tax on business profits

The cost of employee entertaining, as long it’s not incidental to the entertainment of others is allowable. If you invite clients and customers to your party, it is important to consider how to apportion the costs for corporation tax purposes.

Gifts to employees

Christmas presents paid in cash to employees will always be taxable along with other earnings. The same treatment extends to vouchers that can be spent on either one or a number of different shops of the employee’s choice. The employee has to pay tax on the full value of the voucher.

If employees are given a seasonal present, such as a turkey, an ‘ordinary’ bottle of wine or a box of chocolates, as long as the cost is reasonable, HM Revenue & Customs (HMRC) won’t seek to tax it. Unfortunately, HMRC will not tell us the monetary limit it considers as ‘trivial’ but in our experience, less than £50 a head is usually acceptable. If the value of the gift is more than this, it will be taxable.

This blog has been provided by Duncan Mitchell of CED Accountancy Services Ltd.

Contact details:

TEL 01327 358866
FAX 01327 358355
EMAIL duncan@cedas.co.uk
WEB www.cedas.co.uk