We are often asked at this time of year about the tax implications of entertaining and providing gifts to either staff or customers. The good news is you can normally provide a staff party and/or a modest gift, subject to certain conditions being met, as explained below.
Tax relief for employer
Entertaining of non-staff is not a tax deductible expense, however certain gifts which contain a conspicuous advert for the business are generally allowed. However, if the gift contains food, drink, tobacco or a voucher exchangeable for goods, this would not attract any relief no matter whether any advertising is included. Also, the cost of the gift cannot exceed £50.
Staff entertaining and gifts would be tax deductible.
Employment tax position
Annual staff parties are exempt from income tax and National Insurance if they cost £150 or less per head and are open to all employees or all employees in one particular location or department.
Multiple annual events are also exempt as long as the combined cost is no more than the £150 per head limit. If the combined cost per head exceeds £150 then whichever event best utilises the limit would be exempt.
The cost per head is arrived at by dividing the total cost of the function by the total number of people attending (including partners and other non-employees). It is worth noting that the £150 is not an allowance, therefore if the cost of an event exceeds this, the whole amount would be taxable.
HMRC have provided two useful examples for annual staff parties, which can be found here.
For gifts to staff, these can be classed as a ‘trivial benefit’, with no tax or National Insurance implications, if the cost is £50 or less, is not cash or a cash voucher and is not a reward for performance or contractual.
If the limits above are exceeded, the employer can agree with HMRC to cover the income tax and National Insurance on behalf of the employees by entering into a PAYE Settlement Agreement.