With Christmas just around the corner we thought it would be useful to set out the rules surrounding trivial benefits and Christmas parties for tax purposes.

Trivial benefits

If something qualifies as a trivial benefit it means, there is no tax on the employee and the company or business can claim corporation tax relief or income tax relief. 

Trivial benefits can be any gifts (excluding cash) under £50 (including the VAT) given to an employee. However, they can’t be a reward for their work performance, 

Examples of trivial benefits

• Taking some employees for a meal, where the cost per head is under £50
• Giving an employee a Bottle of wine, which cost less than £50 for their birthday
• Gift cards under £50 each given to employees (as long as they can’t be exchanged for cash)

Directors of a close company can’t receive more than £300 total in any tax year. A close company is a limited company with fewer than 5 shareholders. 

Therefore, it is worth keeping the £50 limit in mind when giving Christmas gifts to employees, to save a tax issue later.   

Christmas parties

These would normally fall under entertaining and would therefore not be allowable for tax however there is a specific exemption for a one-off annual function. For these to be allowable for tax purposes certain criteria need to be met:

• cost of £150 or less per head. This needs to include everything for the event paid for by the employer so any transport, accommodation and the VAT.
• Open for all staff members to attend
• Can be more than one event but the £150 per head would need to cover both events. 

E.g £70 per heard for a summer party and £80 per head for a Christmas party

•  The £150 per head doesn’t just have to be employees it can also be their partners and/or children. For example, if you have 10 employees, invite them plus partners, gives you a £3,000 limit. However, it’s worth noting if more than £3,000 is spent this makes the whole amount disallowable for tax.
• Another catch to be aware of is that the £150 per head is for the people who actually attend so any last-minute dropouts could mean the whole event no longer meets the criteria.