Date19 Oct 2023
With the days drawing in and the clocks shortly going back, many employers are turning their thoughts to Christmas and how to celebrate it with their employees.
A Christmas party is often seen as a way to boost morale and celebrate the festive season, but employers should ensure they don’t inadvertently trigger unexpected tax liabilities by being aware of the tax rules and limitations before donning the party hats.
Employers looking to hold a Christmas party may be able to utilise the annual function exemption.
An annual function exemption is available for staff social events, meaning no charge to tax or National Insurance Contributions (NICs) will arise. To qualify for exemption, the cost per attendee must not exceed £150 or the exemption falls away entirely. The costs should include any travel and hotel expenses incurred to enable the employees to attend the event, as well as VAT.
The event must be open to all employees, or where the employer has multiple sites, all employees at a particular location. It can be applied to more than one event - for example, a summer barbeque and a Christmas party. If the cumulative value of both events is greater than £150, then the exemption falls away with at least one of the events being liable to tax and NICs.
Employers wishing to provide a gift to their employees may be able to exempt the gift from a charge to tax or NICs by utilising the trivial benefit exemption. This exemption enables employers to provide small gifts and benefits to their employees.
To qualify for exemption, the gift cannot cost more than £50 (including VAT) per occasion. It also cannot be given in cash or a cash voucher.
A cash voucher is something that can be exchanged for cash and does not include vouchers that can only be exchanged for goods or services. A trivial benefit cannot be given in reward, recognition or to incentivise performance and the employee cannot have a contractual entitlement to receive it.
Whilst both the annual function and trivial benefits are frequently used at Christmas time, they can both be used at other times of the year assuming the qualifying conditions are satisfied.
If an employer prefers to be more generous with their gifts or celebrations, they will need to consider how they will meet the tax liabilities and reporting obligations that arise.