Insights

This year the usual work Christmas parties and team dinners are not going to be possible for obvious reasons and a lot of events companies have launched interesting alternatives on Zoom. Some of these even have live entertainment and lavish remote dining options.

Tax free virtual parties for employees

Whether you go for a more organised affair or stick with team drinks and a virtual curry night, the same tax relief rules for staff entertaining rules will apply for a virtual shindig.

All employers are entitled to treat their employees, tax free, to a party as long as the spend per head is less than £150.

To qualify as tax free for the employee, the event must take place annually and be open to all employees, with a total spend, per person, of less than £150 including VAT.  If the spend exceeds this limit, the whole amount is taxable - either on the employee, through inclusion on their P11D, or on the employer if they have a PAYE settlement agreement (PSA) with HMRC.

The VAT portion of the expenditure can be recovered and the net cost is a deductible expense for business tax purposes.

Customer entertaining is not tax deductible

Whereas you are allowed to treat employees to the value of £150, the same does not apply to customers. Client entertaining is never tax deductible for business tax purposes, so if you decide to say thank you to customers with a virtual Christmas get together, be aware that it is not an allowable expense. VAT incurred is also not recoverable.

Tax free staff gifts

Being such a difficult year, you may want to give all your staff a small gift as a morale booster. Christmas gifts of up to £50 in value – turkeys, wine, chocolates, hampers, etc – can be tax free and do not need to be declared on the P11D or within the PSA.

Cash gifts or bonuses given to employees are always taxable, regardless of how small and insignificant they may seem; this means that PAYE must be applied when the cash is given to the employee. If, instead, you reward your employees with  non-cash vouchers (i.e. those  that can be exchanged for goods and services), these are  benefits in kind which are either reportable on a P11D (which means the employee will pay the tax liability) or the employer takes on the tax liability if they have a PSA in place. Non-cash vouchers of up to £50 can qualify as tax free gifts.

Tax free customer gifts

If you want to reward a particular supplier or customer with a thank you gift, as long as the gift carries a conspicuous advert for your business, costs less than £50 and doesn’t comprise food, alcohol or tobacco, the cost of providing the gift is tax deductible.

If you would like help with calculating tax liabilities on benefits in kind, or registering for a PSA, contact us by emailing partners@rjp.co.uk.