Could you take advantage of tax benefits at your Christmas party?

Hopefully, everyone will be able to partake in a Christmas party provided by their employer. It feels like a long time since the works’ virtual Christmas party was a thing!

With everyone being merry and some slightly merrier than others, it was interesting to read that 18% of employees admitted to being too embarrassed to go to work the next day in a recent poll. 

While the work party can be fun, the employer may wake up to more than a headache when reviewing the costs! To add insult to injury, getting the tax position incorrect could also cost more than you might expect.

Understanding the £150 budgetary threshold

Where an employer provides an annual party, such as a Christmas party or a summer BBQ, and all employees are invited to attend, the employer can avoid each employee receiving a taxable benefit in kind if they can remain within the budgetary threshold of £150 per attendee. 

Note that it is attendees and not employees, so if the costs are near the threshold, invite more people along and be even merrier! 

This threshold is a cliff edge threshold and to breach it would mean that the entire cost of the party becomes a taxable benefit in kind, so keeping a close eye on all the costs associated with the party is recommended, this will include the hire of the venue, any taxis and hotel costs, entertainment and food and drink etc.

Being conscious of burdening employees

Generally, an employer would not want to give unwelcome news to employees that involves them paying further tax, so were the threshold is breached, the employer can voluntarily cover the employees tax on the benefit in kind via a formal arrangement with HMRC, known as a PAYE settlement agreement. 

This method involves the employer making an agreement with HMRC to pay the employee’s personal tax on the benefit in kind, and involves a grossing up calculation, as the payment of the income tax is itself a benefit in kind! 

However, I am sure every employee will be thankful (even if they do not know it).

What are Trivial benefits?

There are also the Trivial benefits rules to consider for employers. This is a tax-free benefit that applies where a benefit is provided to your employee which meets the following criteria:

• it cost you £50 or less to provide (VAT Inclusive amount)
• it isn’t cash or a cash voucher (i.e. a cheque, however a high street voucher is acceptable)
• it isn’t a reward for their work or performance (not employee of the month etc, you are giving this because it is Christmas for example!)
• it isn’t in the terms of their contract (not a salary sacrifice)

If you are the director of a close company, the trivial benefits regime is limited to £300 per tax year, however there is no limit on trivial benefits for your employees, so you can spread the Christmas joy throughout the year!