Christmas is a time of giving and 2020 is a year when an employer’s ability to say thank you to their employees has never been more important. But the Covid-19 lockdown and social distancing restrictions have put a stop to the annual office party and have forced employers to think of alternative ways to wish employees a Happy Christmas, say thank you for all their hard work in the year and boost morale.

Virtual Christmas parties

The usual rules are that employers are allowed to hold an annual event (it doesn’t have to be at Christmas) that is made available to all employees that mustn’t exceed £150 per head.

This is calculated by taking the total cost of the event and dividing it by the total number of people attending (including non-employees). Costs include VAT, taxis, overnight accommodation, food and drink etc.

If the £150 cost is exceeded (even by just a penny) then the whole amount will become taxable. So be careful not to have too much fun at the party, e.g. having an open bar!

This would then have to be reported on the employee’s P11D, or the employer could choose to pay the grossed up tax under at PAYE Settlement Agreement (to avoid upsetting your team!). You could alternatively ask staff to make a small contribution to bring the cost below the limit.

If you spent less than £150 per head, you can choose to use the unused element on another staff party (we love a Summer party at A4G), providing you don’t exceed the annual £150 per head limit.

However, for the vast majority of us, we won’t have having a big Christmas party this year. Face to face meetings and events have all been replaced with virtual meetings and events, and that’s no different for Christmas parties.

HMRC announced on 20 November that:

“Annual parties or events for employees are exempt from tax where the cost does not exceed £150 per head. Festive events for staff will be different during the pandemic, so we’re confirming today that this exemption will also apply to the costs associated with virtual parties – including gifts for consumption at the party.”

They provided this example:

“A company holds one annual function in a tax year and does so virtually using IT. All employees are invited, and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.”

Trivial benefits

Instead of (or as well as) holding a virtual party, you could choose to provide employees with a gift, like a hamper or voucher.

To meet the rules, a trivial benefit:

  • Is a non-contractual entitlement
  • Is not provided in return for a normal service expected by the employee (e.g. hitting pre-set performance targets)
  • Is not cash or a cash voucher
  • Doesn’t exceed £50

Again, be careful, if the cost exceeds £50, the whole benefit is taxed, not just the excess.

More than one trivial benefit can be provided during the year, for example, on employee’s birthday, Christmas, birth of a child etc. However, where the employer is a close company and the trivial benefits are given to the director, office holder or members of their families, an annual limit of £300 exists.

And lastly a gentle reminder from ICAEW “to keep track of all the minor expenses too. If a business provides a bottle of fizz in a nice gift bag as a Christmas gift, the value of the gift bag should be included in the value of the gift when deciding whether the total value exceeds the trivial benefits limit.”

Gifting to your clients or suppliers

What about gifting to your clients or suppliers to say thank you for sticking with you through this incredibly difficult year?

Business gifts to clients are unfortunately not normally allowed as a deduction against profits – they are treated in the same way as business entertaining. However, you can:

  • Gift free samples (these are 100% tax-deductible)
  • Gift as an advert for business (e.g. mugs or pens – but not food, drink or vouchers), but only up to £50 per person per annum
  • Send Christmas cards (these are considered an office expense and are deductible, providing they clearly advertise your business)

It can get a little confusing to work out if your entertaining or gifts qualify for what we’ve mentioned above, so if you’re thinking of gifting this Christmas, it’s best to get in touch with your Principal Adviser, or email us, to discuss through your options.

Contact me today!

Malcolm Palmer


Managing Partner

01474 853856

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