Spreading Festive Cheer – A Tax-Efficient Guide to Rewarding Your Team

As the nights draw in and the festive season approaches, many businesses look for ways to thank their staff for their hard work throughout the year. Whether you’re organising a Christmas party or showing your staff how valued they are by giving them small gifts, there are tax-efficient options available, provided you observe the rules.

Christmas Parties: What You Can Claim

HMRC offers a tax exemption for annual staff events, but specific conditions must be met:

• The event must be open to all employees.

• It must be a regular annual function, such as a Christmas party or summer BBQ.

• The total cost must be £150 or less per person (including VAT, transport, and accommodation).

• This is a threshold, not an allowance.  This means that if the cost goes over £150 per head, the entire amount becomes taxable.

• The £150 can be split between multiple events during the year (e.g. £100 Christmas party and £40 summer BBQ).

• If the combined cost of events exceeds £150, only one event can be exempt.

• If you have multiple locations, you can hold separate events as long as all employees have the option to attend one.

• You will need to keep detailed records of costs and attendees for each event.

Festive Gifts: Use the Trivial Benefits Exemption

Instead of or alongside an event, you may want to give small gifts. HMRC allows certain low-value gifts to be given tax-free under the trivial benefits exemption:

• The gift must cost £50 or less, including VAT and delivery.

• It must not be cash or a cash equivalent.

• It must not be a reward for work or performance, and not part of the employee’s contract.

• The gift should be provided for personal or welfare reasons, such as a seasonal gesture.

• Acceptable gifts could include a hamper, box of chocolates, or retail voucher.

• Directors of close companies are limited to £300 worth of tax free trivial benefits per tax year.

Tips to Stay Compliant

• Plan ahead to ensure costs remain within the limits.

• Keep clear records of spending, recipients, and the purpose of gifts or events.

• Make sure you understand the difference between trivial benefits and taxable benefits to avoid unexpected liabilities.

Final Thought

Recognising your team during the festive season is a great way to build morale and maintain a positive culture. By making use of the available tax exemptions, you can do this in a way that’s both meaningful and financially efficient.

If you’d like advice tailored to your business, feel free to get in touch.