EMPLOYEE CHRISTMAS BONUS AND PARTIES

It’s that time of year again when we are counting down to the man in the red suit paying us a visit.  Make sure that it is not the tax man visiting you in the New Year, by understanding the guidelines on treating your team to a party, night out or bonus.

Bonuses

Employers providing Christmas bonuses to their employees have tax, National Insurance (NI) and reporting obligations.

A cash bonus is the same as any other earnings from a tax and NI perspective and deductions need to be made based on the individual’s coding notice and pay for the period in which the bonus is paid.

That said, a bonus is always well received.

Goods

If you give goods as Christmas gifts to employees or clients,

• HMRC will allow you to give a business gift worth up to £50 to any one person in any one tax year.
• The gift must be a business gift, e.g. business diary and must not be food, alcoholic drink or tobacco or vouchers which are exchangeable for food, drink or tobacco.
• The gift must carry a conspicuous advertisement for your company in order to avoid being classified as entertainment expenses which would not be allowable.
• If the gift costs more than £50, HMRC will disallow the whole amount, not just the amount over £50!

Christmas Parties/Multiple Annual Events

Are you treating your team to a fancy ball or taking them to the local for a few drinks on Christmas Eve?  You will need to think about other social events you have held, if you invited all staff and how much you spend per head because it all relates to employee benefits and you may need to report it to HMRC.

To be exempt, the party or similar social function must be:

• £150 or less per head
• open to all your employees

If your business has more than one location, an annual event that is open to all staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.

If you have multiple annual events as long as the combined cost of the events is no more than £150 per head, they’re still exempt.

If any of the events you provide are not exempt, you will have to report the costs to HMRC and pay NI on them.

For multiple or more annual events costing less than £150 per head, you may be able to count these costs as exempt. However, you cannot do this if you’ve already used up the £150 exemption on another event.

However, you’ll have to report and pay on the full costs of any additional events that go over this limit, even if they cost less than £150 per head on their own.

If you allow people to attend an event who are not employees, then you need to take care if you are planning on reclaiming VAT, as you cannot reclaim the VAT on the money spent on the people attending who were not employee’s.

If you would like any further assistance and guidance on this, please do not hesitate to contact us on 0113 2864486.