13.12.2022 | Tax

It’s time for Christmas gifts and parties – just don’t forget about the tax rules.

What are the tax implications of Christmas treats? Head of taxation at Beatons, Andrew Diver, tells you what you need to know.

As the festive season gets into full swing, most employers will be thinking about giving something back to their staff – whether as a gift or in the form of a Christmas party.

Trivial benefits
Usually, gifting to an employee is considered taxable, but there are exceptions – mainly the trivial benefits rule.

This means that anything gifted under £50 is exempt from tax as long as it’s not cash, a voucher or a reward for services.

The gift cannot be connected to work carried out (as this would be seen as a reward), so the trivial benefits rule is ideal for use on occasions such as Christmas, birthdays or weddings.

It’s worth noting that HMRC can seek to challenge any trivial benefit that is being given regularly, as this then becomes ‘expected’ and voids the gift element so that it is no longer deemed a trivial benefit. For example, this could apply to a monthly staff lunch gathering or regular gifts.

Christmas parties
A Christmas ‘do’ is a good way to show your appreciation to the staff at the end of the year, and just like with gifts, a party would usually be considered entertainment, so is technically, taxable.

But thankfully, there is an exception.

The annual events exception means that £150 per head can be applied before any tax is due. This limit is per year, so if two events a year are held (summer and winter, let’s say), the combined total per head shouldn’t exceed £150.

Employees don’t pay tax on the amount paid out for a party by the employer as long as they are below the £150 threshold, and the employer can obtain a corporation tax deduction for the expenditure.

Giving business gifts
Giving gifts to clients must usually be treated in the same way you would treat business entertainment expenses, which are not tax deductible.

But, as with the above, there are exceptions in which the expenses incurred in providing the gift are deductible from trading profits. These are:

• The gift is an item which it is the company’s trade to provide, and it is given in the ordinary course of the trade to advertise to the public. For example, if a turkey farmer gives free turkeys to suppliers at Christmas.

• It incorporates a conspicuous advertisement for the trader – although care should be taken here as there are exclusions relating to the type of gift and the total amount per person. Beatons can advise further on this if required.

• The gift is given to charity or other specific bodies (though charity gifts cannot be cash.)

If you need advice about whether your Christmas gift and party plans fall within the exemptions, please do contact Beatons info@beatons.co.uk at 01473 659777.