Christmas celebrations and the tax implications

It wouldn’t be Christmas if HMRC didn’t have a number of rules for gathering tax at this time of year - here's the main points you need to know about Christmas Celebrations and the Tax Implications. So looking first at the giving of gifts, HMRC considers some gifts under £50 – a turkey, wine or chocolates for example - as “trivial” and therefore tax-free. However, vouchers or anything that can be turned into money is outside of this exemption and will always be taxable. “Trivial” to HMRC relates to the cost of the item in the recipient’s eyes and not in terms of an employer with a large number of employees where the total cost of providing a gift to each employee may be considerable. Interestingly, HMRC also classifies seasonal flu immunisation as a seasonal gift and therefore as trivial. Other forms of immunisation are not exempted. HMRC has more detail on the subject at http://www.hmrc.gov.uk/manuals/eimanual/EIM21861.htm. Moving on to parties, directors and employees, can be charged tax on their share of an event unless it’s an annual party (for example, a Christmas party) or similar annual function (say a summer barbecue), provided for employees and that it’s available to employees generally or available to employees generally at one location, where the employer has more than one location. If there is more than one annual event for employees there will be no tax if the cost of the event per head does not exceed £150 in total. If any event (or events over the tax year) breaks this limit then tax will need to be paid. It’s worth noting that HMRC considers that £150 is an all in total – that it includes VAT, transport and accommodation. To work out if the limit per head has been breached means dividing the total cost by the number of attendees including non-employees. The £150 is not an allowance, it’s an exemption. HMRC give two examples to illustrate the point. Example one: A company holds an annual Christmas party for all staff including directors. The average cost per employee is £50. This event is exempt. The company also holds an annual party at Christmas for its directors at which the cost per head is £75. This function is not open to staff other than directors. It’s not exempt from tax because it is not available to staff generally. Example two: A company holds two annual events open to all employees in the tax year. The total cost of the first, including transport and accommodation provided for certain guests, was £10,000 including VAT. The total number of persons attending was 100 and the cost per head was therefore £100. The second cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80. The total cost per head for both functions was £180 so both events cannot qualify for exemption. But as the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own - the business can make the choice on which to claim.   The rules on parties can be found at http://www.hmrc.gov.uk/manuals/eimanual/eim21690.htm.