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Being in the midst of the festive season it’s worth considering the tax effect of those Christmas gifts and parties employers may have provided, or, for those leaving it late (like this blog), whether any last minute parties or gifts to employees would be a good idea.

Believe it or not, HMRC isn’t as miserly as Mr Scrooge when it comes the festive period. A tax free allowance of £150 per guest for the office Christmas party should ensure plenty of festive cheer and HMRC extends this good will to any partners and customers attending, provided it is a predominantly staff event and open all employees at a site or office.

As with A Christmas Carol, this is a cautionary tale. If employers spend as much as one penny over this limit, the whole amount becomes a taxable benefit for the employee. That is £150.01 before tax, so income tax and employer’s and employee’s National Insurance must be added on top. Most employers will pay the tax on the employees behalf but, as this will count as a taxable benefit, the employer will have to pay tax on the tax.

Consideration to other events during the year is also needed as the £150 limit applies per year not per event. So, even if the Christmas party is only £140 per head, if the same person attended the Summer BBQ, for example, which was only £20 per head, then the whole £140 Christmas party would be classed as a taxable benefit.

It is worth noting that the limit applies to the number of people actually attending, not those expected, so if several people fail to turn up and you made a block booking in advance, you may lose out.

What about Christmas presents for staff?

Once again, HMRC encourages employer generosity by allowing seasonal gifts, such as a turkey, an ‘ordinary’ bottle of wine or a box of chocolates to be given tax free as long as the cost is reasonable. HMRC doesn’t specify what monetary limit it considers to be reasonable but, in our experience, less than £50 a head is usually acceptable.

HMRC likes employers to give a little thought to staff gifts and will not extend its generosity to cash stuffed in a card. Christmas presents given in cash or vouchers will always be taxable along with other earnings and employees will foot the bill.

It is worth noting that gifts can also often be received by your employees from third parties due to contact they may have had with them throughout the year as a result of their employment. As long as the total value of such gifts does not exceed £250 it won’t be taxable for the employee.

So, plenty of reasons to be a Mr Fezziwig rather than Mr Scrooge this festive season.

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About the author

Adam Spriggs

Adam began his career in London advising individuals and businesses on UK/US tax matters, before working for Grant Thornton and a local firm in South Wales focusing on advising OMB’s. More recently he helped grow an industry leading R&D tax consultancy team in London. Adam qualified as a Chartered Tax Advisor (CTA) in 2012 and joined Haines Watts in May 2019.

Adam prides himself on building long term relationships with the people he works with, understanding their short and long term plans and helping them understand their tax affairs more clearly as well as implementing effective planning strategies.

Adam is married with two sons and a daughter. Outside of work he enjoys going to the gym, spending time with his family and friends and going on holiday whenever the opportunity presents itself.

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