Christmas gifts and parties – what employers need to know about tax this festive season

December is here, which means two things:

• the office snack table is now 90% mince pies, and
• employers are wondering what they can give to people without accidentally upsetting HMRC.

Whether you’re planning gifts, a party or both, here’s what you need to know to stay festive and compliant.

Are staff Christmas gifts tax allowable?

In theory, any gift to an employee is a taxable benefit.  But HMRC has decided not to play the role of Scrooge and the trivial benefits exemption can save the day.

What counts as a trivial benefit?

A gift is considered ‘trivial’ (and tax-free) if:

• It costs £50 or less
• It’s not cash or a cash voucher
• It isn’t part of salary sacrifice or a contractual entitlement
• It isn’t a reward for doing the job

If all four conditions are met, you’re good to go.

How often can I use the trivial benefit rule?

As often as you like within reason.  Christmas presents, Easter treats, baby gifts they can all qualify.

But beware: if HMRC sees a pattern (for example, payday drinks every month), it might argue the gift is expected, not ‘trivial’.

What if the gift is worth more than £50?

You can still treat your staff; it simply needs to go through a PAYE settlement agreement (PSA).  That means the employer pays the tax on the employee’s behalf, on a grossed-up basis.

Directors of close companies have an extra rule - they’re limited to £300 per year under the trivial benefits concession, including gifts to members of their household (unless that person is also an employee with their own £300 limit).

Are Christmas parties taxable?

Normally yes.  Staff entertainment is a taxable benefit.  But HMRC has an events exemption. Your party will be tax-free to your employees if:

• It’s annual
• It’s open to all employees
• It costs less than £150 per head

This isn’t just for Christmas. You can split the allowance between say, a summer BBQ and a December party as long as the total cost per head stays under £150.

How is the cost per head calculated?

Include everything; venue, food, drinks, transport, overnight stays and VAT.  Then divide by everyone attending even plus ones.  Different sites or departments can have separate parties, as long as all staff can attend at least one.

Need help navigating festive tax rules?

The tax treatment of gifts and events can get complicated. Swindells can help you:

• Review remuneration packages
• Plan tax efficient benefits
• Support cost of living-friendly employee perks
• Set up and submit your PSA

If you have any further questions do get in touch with your Swindells partner who will be more than happy to guide you further.