Firms will have been working tirelessly throughout this year so, with Christmas on the horizon, it is time to plan to help your team to enjoy festivities as well as saying thank you for their efforts.
It is relatively well known that the cost of entertaining staff at a seasonal event is not taxed as a benefit in kind provided certain conditions are met. During the pandemic, HMRC extended the staff parties concession to apply to the costs associated with virtual parties in the same way that it would for traditional parties, and this still applies. So, if your plans for an event do have to go virtual again, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event will be exempt, subject to the normal conditions.
Remember, the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event and food etc. is available to all employees. As with a traditional party, the cost of the event (or events, if spread across the year) must not exceed £150 per head, including the VAT.
It is important to remember that HMRC will still apply the rules strictly: for example, giving out restaurant vouchers to staff for £100 would not fall within the exemption. Vouchers that can be exchanged for goods and services (non-cash vouchers) are treated as a benefit in kind, so income tax and NICs are due on the taxable value - although practices could choose to bear this cost through a PAYE settlement agreement with HMRC.
While such gifts to staff are generally taxable, a ‘trivial’ benefit can be given to employees without a tax or NIC charge arising provided all the following conditions are satisfied:
1.The cost of providing the benefit does not exceed £50
2.The benefit is not cash or a cash voucher (eg a premium bond)
3.The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice)
4.The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).
Where the above conditions are not satisfied, the full cost of the benefit (not just the excess over £50) is taxed in the normal way, subject to any other exemptions or allowable deductions. While VAT can be recovered on the purchase of gifts, VAT must be accounted for when these gifts are given away, unless the total cost of any gifts given to that person in any twelve-month period is less than £50 (excluding VAT).
However you decide to say thank you to your staff this Christmas, the good news is that the costs of a staff virtual party and the value of staff gifts are usually a tax-deductible expense. If you are in any doubt over the tax treatment of staff benefits and rewards, please contact Geraldine Browne or Renee Dawson in our team for help and advice.