It's the most wonderful time of the year...

Of course, all cash gifts are taxable, but thanks to a trivial benefit tax exemption you can give non-cash gifts up to £50. It’s an all or nothing exemption so if the cost of the gift exceeds £50 then the full value is taxable under the usual benefit in kind rules. You do not have to make such gifts available to all staff.

The general rule is that there is no limit on the number of individual trivial gifts that can be given to an employee in any one year, provided each gift individually qualifies for relief – there are, however, rules that prevent an employer trying to divide a larger gift into several smaller ones. In addition, there is an annual cap of £300 on the aggregate value of trivial gifts that can be paid to directors of close companies.

Any cash you give to employees as a Christmas bonus counts as earnings, so you will need to add the value to your employee’s other earnings and deduct and pay PAYE tax and Class 1 National Insurance through payroll.

If you give goods as Christmas gifts, and they can’t be counted as trivial benefits, you must report them on form P11D and pay Class 1A National Insurance on the value of the benefit.

A non-cash gift voucher which can be spent in a retail store should be acceptable.

Lets party!

There is a tax exemption that allows employers to provide an annual function as long as the following criteria are met:

• the party must be open to all employees, or all at a particular location; and
• the total cost of all staff parties, or functions, within a year must not exceed £150 including VAT per attendee.

All end-to-end costs must be included, e.g. transport, accommodation and raffles.

The cost per attendee can include clients and partners of employees so keep an attendee list so you can prove the numbers if HMRC challenges you.

Be aware that if the cost of the party goes over £150 it’s all taxable, not just the excess over £150, you would then need a PAYE settlement agreement as it’s unlikely you’ll want your staff to pay tax on the cost of the party. If you have more than one party in a year, use the tax exemption against the most expensive party as long as it’s no more than £150 per head. If you have two parties, say a summer ball that cost £70 per head and a Christmas disco at £80 per head, then both can be exempt as in total they don’t exceed £150.

VAT recovery is not restricted by the £150 limit but you can only reclaim VAT for the staff, not the client/supplier element of the entertaining.

Whether you employ one hundred employees or its just you the exemption applies. It extends to guests so your spouse/partner can come along too tax and NI-free!

As far as Tax is concerned, the company can claim a deduction for the cost for staff and their partners. Again, the costs incurred in relation to client/supplier entertaining is not an allowable deduction.

If you are still keen on social distancing the exemption applies to virtual events too.