“Tis the Season” – 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 having planned the much-awaited Christmas party! In addition to this, employers may also give gifts or arrange Christmas parties for employee’s children. Where there are benefits provided to staff, there will be tax, NIC and reporting implications that must be considered. 

Staff Parties/Events

Where certain conditions are met, a staff party or event will be considered a tax-exempt benefit. To qualify for this exemption, the social function must: 

• Be open to all employees, regardless of whether they attend or not. 
  • The legislation does allow for employers to have the party in one location and invite attendees from other company sites however, 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 again they are not open to all employees. 
• Be an annual event. 
• Costs £150 or less per head (note that cost is per attendee, not specifically per employee). 

Multiple annual events in a tax year can be exempted where the aggregate cost does not exceed £150 per head. 

Where the above conditions are not met, a taxable benefit will arise and subsequently, tax and NI will be due. It is the employer’s discretion as to whether they report the benefit on the employee’s Form P11D or if they wish to use their PAYE Settlement Agreement (PSA). A PSA allows the employer to report the event to HMRC and pay the tax and NIC due on a grossed-up basis to HMRC. Following the recent November 2024 budget, the employer’s NIC liability will increase from the current 13.8% in the 2023/24 tax year to 15%. 

Staff gifts

When an employer gifts an employee, for example with a Christmas hamper, alcohol or a non-cash retail voucher, this is likely to be covered by the trivial benefit exemption. 

As with most exemptions, there are conditions that must be satisfied for this to be available: 

• The benefit is not cash or a cash voucher. Therefore, 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. 

If all the conditions are met, there will be no tax or NI liabilities for either the employer or the employee. Where the gift fails to satisfy one, or all, of the conditions, this will be considered a taxable benefit. Hence, the provision of such gifts to employees will have tax, NI and reporting consequences. 

Where staff entertainment or staff gifts are deemed to be 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 employees at Christmas in the most tax efficient way please contact Rachel Leslie, Gillian Forrest, or your usual AAB contact.