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Let's be jolly 'tis the season for tax-free Christmas parties

Tuesday 29 November 2016, ICAEW is reminding employers that there's no need to be a scrooge this Christmas - thanks to a tax break, businesses can spend a tax-free amount of up to £150 per employee each year. However, when it comes to gifts for staff, only presents which are deemed ‘trivial’ are exempt from tax.

To be exempt, the amount spent on the Christmas party, or similar event, must cost £150 or less per head per annum. All spending during the year must be aggregated to see if the exemption applies.

Anita Monteith, ICAEW Tax Faculty Technical Manager, explains:

“The tax exemption for a staff Christmas party is a great way to reward hard work and boost staff morale. This £150 applies to each tax year, so employers can put on both a summer party and a Christmas event, and the employees will enjoy some tax free fun as long as the total cost for both is less than £150 per head. Don’t forget if you spend as little as one penny over the limit, the full amount spent on the party becomes liable to income tax and National Insurance.”

“Businesses of all sizes can take advantage of these savings at Christmas. The £150 cap includes accommodation and transport home, as well as food and drink. And, as long as the cost per head is kept under the limit, employees can bring their partners along too.

Anita adds: “For those bosses who are truly entering the festive spirit, this year we have a new trivial benefits exemption. Usually gifts to employees are taxable, but from 6 April 2016 on, if they cost less than £50, they may be deemed trivial. So for the first time employers can give their employees a Christmas hamper without having to worry that the tax man might come calling.”

The exemption won’t cover gifts where:

  • The cost of providing the benefit exceeds £50
  • The benefit is cash or a cash voucher
  • The employee is entitled to the benefit as part of a contractual obligation (including under salary sacrifice arrangements)
  • The benefit is provided in recognition of particular services performed by the employee as part of their employment duties.

Anita adds: “Don’t forget, cash gifts, such as a Christmas bonus of vouchers redeemable for cash, also have to have tax and National Insurance contributions paid through the PAYE system.”

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Email: kirsty.howe@icaew.com