A staff party or an annual function qualifies as a tax-free benefit for your employees providing that you meet the following conditions:
The total cost must not exceed £150 per head, per year.
- £150 includes VAT together with any extra costs such as transport and accommodation.
- The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable on the employee.
- The event must be primarily for entertaining staff.
- The event must be open to all staff (whether they come or not is up to them)
- The event is not just to be for directors, unless all your staff are directors.
- The cost of the whole event is an allowable expense for your business.
- You can claim back input VAT but this will be restricted where you are also entertaining customers or the employees bring along their partners.
The £150 per head also extends to your employees partners therefore if you have 5 employees and they each bring along a partner you can spend £1,500 on the party and it would all be tax deductible.
Hmrc Trivial benefits exemption – providing gifts to staff
- The cost of the gift cannot exceed £50
- The gift cannot be cash or a cash-voucher but can be a store voucher.
To avoid smaller companies taking advantage of this, any benefits provided to directors or other office holders have the exemption capped at a total cost of £300 per tax year.
Importantly, if the cost exceeds the £50 limit, the whole of the benefit is taxed on the employee, not just the excess.
Gifts to non employees
You can send Christmas cards as a tax deductible expense.
You can also send small promotional gifts of up to around £50. However, the gifts must carry a clear advertisement for the business (e.g with branding or logo) which must be on the gift itself, not just the wrapping. They can’t be alcohol, food, drink, tobacco or vouchers.
Non promotional gifts and larger gifts are classed as entertaining and are not tax deductible as an expense.