Trivial Benefits & Christmas Parties

With Christmas just around the corner (less than 50 days away now!) we thought it was time for a quick recap of the rules surrounding staff and annual parties/function.

Most of you will have booked something by now and are no doubt looking forward to letting your hair down after a long old year.

Firstly though, we wanted to just touch on the Trivial Benefits legislation which has been in force for a few years, but may not be as well known as we think it is!

What are Trivial Benefits?

HMRC say that a benefit for your employees can be exempt if the following apply:

• It cost you £50 or less to provide
• It isn't cash or a voucher which can be exchanged for cash
• It isn't a reward for their work or performance
• It isn't contractual

Examples of such benefits would be flowers, chocolates, bottles of champagne, meals out, store vouchers/gift cards

There is no limit as to the number of trivial benefits which can be provided to “normal” employees, but you need to be wary of making regular benefits as they could be seen to be a reward for services or contractual in nature

You also need to be careful not to say that the “benefit” is a reward for meeting target this month (for example) as that would be a reward for their performance

Where the annual limit of £300 comes into play is for directors of close companies (run by 5 or fewer shareholders) – in these circumstances you can only receive £300 of trivial benefits in any one tax year.

Social Parties/Functions

To be exempt from tax and National Insurance, then the party/social function provided must be:

• £150 or less per head
• Annual, such as a Christmas Party or summer barbecue
• Open to all employees, not just directors

You can put on more than one annual event per year, and as long as the total cost for both is below the £150 limit, then both parties will be exempt

If both parties come to more than £150 a head, then you will have to report the full costs of any additional events which have gone over the limit, even if they are less than £150 per head on their own.

HMRC have a few useful examples showing how this works in practice.

Can I bring my Partner?

For some firms this might be a complete no-no in any case, but some smaller firms might invite employees' partners to some of their annual functions.

The good news is that the £150 a head limit still applies to family members, so even if partners are included (who aren't employees of the firm) then the exemption will still apply as long as the limit isn't breached.

However, if the limit is breached (see examples above) then the employee will be liable for tax and National Insurance on the full cost per head in respect of themselves and any family members who attend as guests.

Don't forget!

• The cost of the function includes VAT and the cost of transport/overnight accommodation if these are provided to enable employees to attend
• The full cost of the annual parties should be an allowable cost for your business (as it is staff entertaining) – an apportionment may need to be undertaken if suppliers/customers are invited
• You must only reclaim the VAT which is relevant to staff entertaining, so an apportionment will need to be carried out if customers or the partners of employees are attending

If you're unsure of anything surrounding your firm's Christmas party plans, then please just give us a call or drop us an email and we can help you with your options.