Are you aware of Trivial Benefits, and the tax implications of holding company social events and parties?
It’s the time of the year where we are approaching the festive season. This is when businesses start thinking about Christmas parties and giving staff gifts.
In this article, we will be exploring the tax implications on giving gifts to staff and having a company Christmas party, as well as all the information you need to know about Trivial Benefits.
What are Trivial Benefits?
A trivial benefit is a small token or gift, given by management to their employees. These are usually, bottles of wine, chocolates, hampers, staff lunches etc.
It is so that employees can receive gifts from their employer without having to pay any tax on it.
What qualifies as a Trivial Benefit?
You don’t have to pay tax on a benefit for your employee if all of the following apply:
- cost you £50 or less to provide
- not be cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
For example, if you wanted to give your staff a hamper each for Christmas, as long as it meets the above criteria per person, you don’t need to pay tax or National Insurance or let HMRC know.
You may have heard of or experienced it yourself – the old tradition where companies would give their employees a turkey every Christmas.
Although this tradition has become less common over time, many companies still give gifts, to their employees at Christmas time.
These turkeys would be classed as a trivial benefit, meaning no tax would have to be paid on them – therefore, the employees got to enjoy a tax-free gift and they wouldn’t have to purchase a turkey for Christmas! A win-win situation.
Nowadays, many companies have decided to give gifts other than turkeys during the festive season. For example, hampers, wine, and chocolate.
Trivial benefits don’t have to be given at Christmas time, many companies
give their staff gifts on special occasions. For example, when they have a baby, get married, or when it’s their birthday.
You must remember that if you’re giving gifts to your staff at Christmas, turkey or not, it’s highly likely that they would be classed as a trivial benefit.
What about Christmas parties?
If you’re planning on a Christmas party for your company, you must make sure you know the current tax implications.
The current rules for company events are:
- be open to all your employees
- take place annualy, such as a Christmas party or summer barbecue
- cost £150 or less per person
You may also hold multiple annual events if the cost of the events per head are no more than £150.
If any of the events you provide aren’t exempt, you’ll have to report the costs to HMRC and pay National Insurance on them.
This can be declared through a P11D form – read our article, P11D forms: all you need to know.
According to HMRC, entertainment can involve taking a client out for food, drinks, and other forms of hospitality.
There are two types of entertainment: ‘business entertainment’ of clients, and ‘non-business entertainment’ of clients.
Business entertainment is usually where a product or proposal is discussed. Non-business entertainment is for entertaining a business acquaintance for social purposes.
When taking clients out, it is advised to pay for the event through the business account instead of personal accounts.
The expense will not be an allowable deduction for Corporation Tax, you will save the income tax you would otherwise pay on withdrawing the funds to pay the costs personally.
Overall, VAT can’t be reclaimed when it comes to entertaining. Except when entertaining overseas clients.
Conclusion – Trivial benefits & tax implications
If you’re thinking about booking a Christmas party and/or giving your hardworking staff gifts this festive season, don’t forget about the tax implications.
If you’re still unsure about anything relating Trivial Benefits or tax implications of Christmas parties please don’t hesitate to contact us.
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Whilst you’re here, why not check out our post on ‘Self Assessment – The Complete Guide’.Christmas, Entertainment, TAX, Tax Implications, Trivial benefits
This post was written by Daisy Vowles