The CleverHub

A central source of accountancy related news, arcticles and reviews

Call 0113 518 8800 Call me back

Christmas Tax Exemptions – Virtual parties, Christmas gifts and Trivial Benefits

by | Nov 22, 2019 | Expenses

COVID-19 update on tax-deductible expenses during this festive season. Updated on December 10th, 2020

HMRC has published its employers’ guidance for tax relief rules, this Christmas.

Due to the Coronavirus social distending restrictions, most companies will not be able to host a physical Christmas event for their employees in 2020.

However, HMRC has announced that the annual parties exemption will apply to virtual events as well. Hence, providing virtual entertainment, budget for food throughout the event and other expenses will be exempt, as long as they meet the normal conditions below:

  •  Entertainment costs should not exceed £150 (including VAT) per employee.
  •  Each low-value gifts to employees and company directors such as chocolate or a gift card, must not exceed £50.
  • Buying gifts (as trivial benefits) for employees including directors and other office-holders, cannot exceed £300 in total per year
  • You must ensure that all employees and directors are invited to the virtual event.
  • You cannot give cash or cash equivalent (vouchers) as gifts. 

Christmas is fast approaching, and in the season of goodwill, you may be thinking of hosting a gathering or buying a few gifts for colleagues or customers. Here’s a quick reminder of the relevant tax relief rules, so you can be generous without running into trouble with HMRC.

Claimable expenses on Christmas Parties

Entertainment for clients is not a tax-deductible expense, but an event for staff and their plus ones certainly is and thus can be claimed back as a trivial benefit.
So, your limited company can claim its Christmas party as a deductible expense against corporation tax as long as you observe the following rules:

It’s open to all staff

For a party to be tax-deductible, you must ensure total company inclusion. That means all of your employees and directors must be invited. A party for one particular team or a ‘directors only’ party would not be exempt from tax. If you are a one-person company, you and your plus one can still enjoy a festive celebration as a deductible expense.

You spend no more than £150 per person

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

You must take care not to go over this limit. Even doing so by just a nominal amount will mean you can no longer claim the tax exemption. If you do overspend, the entire cost will be treated as a benefit-in-kind (BIK) and subject to additional tax and NI.
From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

You claim VAT correctly

VAT on the cost is recoverable but only if you charge each guest a nominal fee. The fee is subject to what’s known as ‘output VAT’ and needs to be included in the company’s VAT return.

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

Hospitality for Clients

Client entertaining generally is not allowed for corporation tax or VAT purposes, so you cannot claim tax relief for the costs of inviting your clients to your Christmas party. That doesn’t mean you can’t invite them – you certainly can, but if you do; then it is important to separate the staff and client costs and apportion appropriately for tax purposes.

Gifting

You can give small, low-value gifts such as chocolate or a gift card to employees and company directors and this can be exempt from tax and classed as ‘trivial benefit’. There is a limit, however – to be tax-exempt the value must not exceed £50 including VAT. If the cost exceeds £50, the full amount is taxable.

When buying gifts for directors and other office-holders, the total amount provided by the company cannot exceed £300 altogether. Again, you cannot give cash or a cash voucher, and you must keep a receipt for your purchase. Also, the employee must not be entitled to the benefit as part of any contractual obligation, and the benefit must not be provided in recognition of services performed as part of their employment duties.

From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

What are Trivial Benefits?

In principle, a Trivial Benefit is a low-value, tax-deductible gift provided by the employer to an employee. An employer does not pay tax for the benefit provided if the following conditions are met:

  • The gift or benefit was not given in a form of cash, cash vouchers or other forms of cash equivalent.
  • The value of each gift must not exceed the amount of £50 per employee.
  • Buying gifts for directors and other office-holders, cannot exceed £300 in total per year.
  • Clients gifts will not be considered as a Trivial Benefit. This benefit should be provided to company employees only.
  • A benefit wouldn’t count as a Trivial Benefit if it was given as a reward for the professional performance of an employee
  • The benefit is not part of the employee’s contractual agreement.

Ask for advice – before you spend!

If you’re thinking of hosting a party or buying Christmas gifts through your limited company, it’s a good idea to check with your accountant at Clever Accounts, first. For further information and advice around the tax rules of Christmas parties and gifting, please get in touch and have a Merry and safe Christmas!

IR35 - read more about it

Find out what changes are coming, how this could affect you and what we can do to help.

COVID-19

Information for contractors, freelancers and limited company on what help is out there

Our accounting packages

Limited Company

Used by thousands of limited companies and contractors, you get unlimited accounting support and advice, easy-to-use online accounting software all for a single fixed monthly fee. This package also includes our Flex solution to allow seamless switching between a limited company and Umbrella plus free insurance*

Growing Company

Our fully bespoke accounting service for limited companies that are growing or in need of additional services. This package includes a dedicated bookkeeper and payroll solutions for multiple employees together with fully pro-active support and advice and face-to-face meetings via video conferencing.  If you need that extra hands-on service, this is perfect for you.

Need an accountant?

Clever Accounts offers fixed-fee online accountancy support for contractors, freelancers and limited companies.

Dedicated accountants, online accounting software and 15 years expertise in the market makes us the perfect choice.

Find out more Request a call back

Z

Designed for contractors & limited companies

Z

Your own dedicated, experienced accountant

Z

Monthly fixed-fees - no surprise bills

Z

End-to-end IR35 support and guidance

Z

Year end accounts, payroll and VAT