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19 December 2022

Christmas Festivities & Employee Gifts: An Employers’ Guide to the Tax & NIC Implications

Now that Christmas is upon us (“oh yes, it is!”), employers will be turning their attention to their own employees, rewarding them for their hard work and dedication over the past year. There may be employee gifts for staff and celebratory Christmas parties, however, we cannot forget the tax and NIC implications that will need to be considered…

Tax implications of Christmas Parties and Employee Gifts

Staff Parties / Events

A staff party or event will qualify as a tax-free benefit if it meets all the criteria for the “annual events” exemption to apply. There are certain conditions that will need to be met.

  • The party will need to be open to all, regardless of whether they attend or not, however, the employer is able to have the party in the one location and invite attendees from other company sites.
  • It is also worth noting that if an employer holds separate events for different departments, they may be able to fulfil the exemption, provided that all employees have the option of attending at least one of them.
  • A party for directors alone, unless all employees are directors, will not meet the exemption as it is not open to all employees.
  • Christmas children’s party will not be exempt as they are not open to all.
  • The party or event will need to take place every year.
  • Cost must be £150 or less per those who attend.
  • The exemption can be used to cover more than one event, provided that the £150 limit is not exceeded in a tax year and all other conditions are satisfied.

Where a benefit in kind is liable to tax and NIC, arising where the exemption conditions are not met, it maybe that an Employer will decide that instead of reporting on the employees’ form P11D they will use their PAYE Settlement Agreement (PSA) This allows the employer to report the event to HMRC and pay the tax and NIC due on a grossed-up basis to HMRC.

Employee Gifts

When an employer gives a gift to employees, i.e. Christmas hamper, bottle of wine or spirit or a non-cash retail voucher, this is likely to be covered by the trivial benefit in kind exemption.

As with most exemptions, there are conditions that will apply in order for them to satisfy HMRC, these are:

  • The benefit is not cash or a cash voucher. A cash gift, such as a Christmas bonus, does not qualify.
  • The cost of the benefit does not exceed £50, inclusive of VAT and delivery.
  • The employee is not entitled to the benefit as part of any contractual obligation.
  • The gift is not provided in recognition of a particular service performed by the employee as part of their employment duties. welfare purposes.

If all the conditions are met, there will be no tax or NIC liabilities for either the employer or the employee. Where one or all of the conditions are not met for a festive gift, the gift will be taxable and liable to NIC.

In the circumstances that staff entertainment is taxable, employers may again use their PSA to deal with this to avoid reporting the gifts on employees’ forms P11D or via the payroll.

For further information on how to reward your team with employee gifts this Christmas time in the most tax-efficient way, contact our tax team. 

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Contact Malachy

Malachy McLernon / Tax Partner

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