December is the month for Christmas gatherings, and the giving and receiving of gifts, to celebrate the festive season. Most business owners want to also find out how they can squeeze a little more from their generosity when they are organising festive events or treats for their team. It is therefore important to understand the tax treatment of your “treats” so you can give yourself the gift of paying a little less tax next year.
Organising a Christmas party?
If you are planning to celebrate Christmas with a party, dinner, lunch or other event the good news is you can claim tax relief.
However, there are a few rules that you need to abide by in order to classify the cost as allowable for tax purposes.
(1) Open Invitation
Firstly, all your employees need to be invited. It can’t be an outing for some and not for others.
(2) Limit per head
Secondly, there is a maximum spend per head of £150, including VAT. This covers accommodation, food, drinks and travel.
However, this limit is an annual staff entertainment allowance, so if you organised events earlier in the year, such as a Summer BBQ, then you will need to take that into account.
To do this, simply add all the total costs of each event, and divide it by the total number of attendees, including if spouses or partners are invited.
It is important to note that this limit is strict. Even if the allowance is exceeded by £1, the entire cost of the event will be void from tax relief, not just the excess part. It is therefore essential to budget as tax and NI can quickly add up.
In order to claim the tax relief, there does need to be an actual event. This allowance is a threshold rather than something there for the taking.
If you are feeling like splashing the cash this year, then a grander, more expensive party is allowed, of course. It’s just the tax relief doesn’t apply outside of this annual allowance.
(3) Customers don’t count
Finally, it is possible to invite customers or other people to the event, but they don’t qualify for tax relief.
Christmas Party for err, one? Are you the sole employee of your company?
If you are the sole director, and sole employee of your company, you can technically use the staff entertainment allowance to treat yourself to a festive dinner. Extend the invite to your spouse or partner too, if you are feeling generous, and you can both enjoy the treat tax-free.
Want to treat your team with a gift?
Seasonal gifts are allowable for tax relief where they are of a “reasonable” price. There are no specific guidelines on what classifies as a reasonable amount, however in our experience £50 per person isn’t likely to raise any eyebrows.
It is important to note that cash gifts are not allowable for tax relief and neither are gift vouchers, where the holder has a choice of shops to spend them. Hampers, wine, chocolates and festive gifts though are generally allowable for tax relief.
GET HELP WITH YOUR PAYE Settlement Form
If tax does become due on your festive treats, then it is important that you complete a PAYE Settlement Form (PSA). This passes the tax responsibility from your employee to you, so you can settle the tax on the additional amounts.
It would definitely be a Trojan horse of a gift if your employee also had to pay the tax bill!
AJN Accountants can help you with any paperwork and ensure you are maximising your tax relief on festive entertainment and gifts.