A Covid Christmas

Christmas is fast approaching, and you may be thinking what rewards you can give your employees for their hard work over the last year with a tax-free gift or a staff Christmas party?

Each year we are often asked this question, therefore, here are a few options for you to consider:

What can I gift to my staff and Clients this Christmas?

Virtual Christmas party.

The Covid pandemic means that hosting a physical office party may be a little challenging so hosting a virtual party may be an option.

If you are contemplating holding a virtual event, the main point to be aware of is that register of attendance may be necessary. You can book entertainment for the event, or perhaps there might be a Christmas quiz.

HMRC confirmed 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 and that the exemption will also apply to the costs associated with virtual parties, including gifts for consumption at the party.

Gifts for staff:

A gift of cash would be taxable as earnings, therefore, what other alternatives are there?

You could consider these tax-free gifts if the total cost is less than £50 per head:

  1. A turkey
  2. an ‘ordinary’ bottle of wine
  3. A box of chocolates

Gifts over £50 such as a case of wine or an expensive hamper will have to be run through payroll and declared on the employee’s P11D.

It must be noted that there must not be any contractual entitlement to the gift or given as a reward.

Vouchers to staff

Cash vouchers are taxable in full and must be processed through the company payroll. Non-cash vouchers in the form of store vouchers are ok if they do not exceed the £50 limit. Previously, non-cash vouchers had to be reported on the P11D.

A cash voucher is a voucher that is exchangeable for cash. Store vouchers do not meet these criteria. They are only exchangeable for goods. As many employers give store vouchers to employees at Christmas, it is important that employers are aware of the difference and the tax consequences.

Clients & Suppliers

Business gifts to clients and suppliers are not usually allowed as an expense and are treated in the same way as business entertaining. That said, there are exceptions-

  1. Gifts of free samples of your products are 100% deductible
  2. Promotional gifts for the business are tax-deductible. These could be branded mugs, diaries, or pens, up to £50 per person per annum.
  3. Gifts of food, drink and vouchers are not tax-deductible.
  4. Christmas cards to clients and prospects are an office expense and 100% allowable as long as they are branded.

It’s worth noting that VAT on client entertaining is not recoverable but is ok for employee entertaining.

Useful Links:

HMRC Expenses and Benefits – What to report and pay

HMRC Making a Christmas bubble – family and friends

HMRC – General guidance for Christmas