Claiming tax relief on Christmas parties and gifts

The festive season is here, which means it’s Christmas party time! What can be better than celebrating your successes and hard work with your colleagues? Well, knowing that you may be able to claim tax relief on your Christmas party and gifts could be an extra treat for you and your small business this year. 

How best to celebrate for tax

You can choose to celebrate with your colleagues in different ways – a party, lunch, dinner or even an afternoon tea. If you follow the stringent requirements set out by HMRC you could save tax as well.

The requirements set out by HMRC, for Christmas party’s state:

  • it must be an annual event
  • the event must be open to all employees
  • the total of all events over the year must not exceed £150 per head

The important point to note, is that the party has to be open for all employees to attend. If you have sections of the business situated in different locations or have multiple teams, you may hold a party for the individual sections or teams, which is separate from the others.

However, tax relief will not be applicable if the party is solely for the directors of the business and their family. Unless, you are the only employee!

Other guests are allowed to be invited but the purpose of the party must be for the entertainment all your staff.

What’s included and what’s not

When calculating the cost per head, you must include VAT in the calculation. Also, the cost per head is to cover a full 12 months. For example, you can hold 3 events throughout the year costing £50 per head, each. As long as the total cost of all three events doesn’t exceed £150 per head (even by one penny), you can claim tax relief on them.

Additionally, included in the £150 cost per head, can be things like transport and accommodation.

Christmas gifts for staff

HMRC will deem gifts to staff exempt from tax if they are a ‘trivial benefit’. For it to be a ‘trivial benefit’ it must cost less than £50 and not be included in the employment contract or as a reward for performance.

The gift cannot be cash or a cash voucher. Things that are likely to be exempt include a bottle of wine, chocolates and even a Christmas turkey!

AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.

Please contact us for more information:

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