Have yourself a tax efficient little Christmas…with a virtual party!

COVID-19 may have pulled the plug on this year’s traditional office party across Northern Ireland but business owners and staff can still have some festive fun with a virtual Christmas party – and a little help from the taxman, according to Lisburn-based accountancy firm Exchange Accountants.

Sometimes the ‘tax man’ might seem like a real-life version of infamous skinflint Ebenezer Scrooge but Christmas can be a season of goodwill if companies take advantage of seasonal benefits on offer from HMRC, according to Gary Laverty, director at Exchange Accountants which provides premier accountancy services and tax advice to a wide variety of locally based SMEs and individuals.

Amongst the range of tax benefits to help companies make this Christmas a little merrier, the most bizarre is arguably for ‘virtual Christmas parties’, as Gary Laverty explains.

“It may have been totally unthinkable this time last year but HMRC has now confirmed that the cost of hosting virtual Christmas parties will be tax deductible this year,” said Gary. “What this means is that employers can still thank staff for all their hard work by hosting a virtual Christmas party – and the costs will attract the same level of tax relief as for a physical event. Provided the event meets certain criteria, employees will also still be exempt from any tax charge under Section 264 of ITEPA 2003.

“The exemption is £150 per head (including VAT) to cover food and drink and, where applicable, transport, venue hire and accommodation. Obviously, due to current Covid-19 restrictions, people will be ‘partying’ from home so the latter costs are very unlikely to come into play this year. The key is that it must be an annual event which is open to all members of staff, and potentially non-employees too (such as family and friends), and the overall cost of annual events must not exceed £150 per head – otherwise the entire cost then becomes a taxable ‘benefit in kind’ for the employee.

“This year has seen meetings and events, even awards ceremonies, being hosted remotely – so providing all the aforementioned conditions are met, a virtual staff Christmas party will also fall within the scope of the £150 exemption. Remember the company can also reclaim the VAT on the cost of staff entertaining, provided a valid VAT receipt is held, and copies of the receipts / invoices should always be retained as evidence.”

Other benefits to help make Christmas a little merrier for local companies include:

Tax-deductible Christmas presents: Gifts for clients and customers are only tax deductible if the cost per year is less than £50 per person and the gift contains noticeable advertising for your company. Unfortunately, gifts of food and alcohol do not qualify for this particular relief. VAT can be reclaimed provided the cost of the gift does not exceed the £50 limit.

Gifts for employees: Unlike with gifts to clients, gifts to your employees which contain food or alcohol do attract tax relief. VAT can also be reclaimed in full (where applicable) on the cost of gifts to employees, with no upper limit. The cost of these and other ‘non-cash gifts’ made to employees are a tax deductible expense for your company, and will also not be taxable in the hands of the employee, provided the gift is considered to be a ‘trivial benefit’ by HMRC. This means the gift must cost less than £50 per employee (including VAT), must not take the form of cash or a cash voucher (although a gift card for a specific retail store is acceptable), must not be performance-related, and must not form part of their contract of employment. Again, this is an ‘all or nothing’ exemption - if the cost of a gift exceeds £50, then the full value will be taxable for the employee under the usual ‘benefit in kind’ rules.

Cash gifts - often referred to as a ‘Christmas bonus’ - will still attract tax relief for your company but are not tax-free for the employee and must be taxed along with the employee’s other earnings via the payroll. Similarly, cash vouchers are tax deductible for your company but are not tax-free for the employee. They will also be subject to PAYE and National Insurance in the hands of the employee and should be processed via the payroll in the same way as their other earnings.

If you’ve had a successful year and would like to reward particular members of staff for their contribution during the year, there are a couple of tax-free ‘cash’ awards that you can give to staff. ‘Encouragement awards’ up to the value of £25 can be given to employees in recognition of extra special effort or good suggestions for the business.

At a higher level, ‘Financial Benefit’ awards of up to £5,000 (subject to certain limits) can be made to staff who have played an important role or made a suggestion that has saved or earned your company a lot of money. These staff suggestion schemes must be open to all employees and financial awards must only be made in the event of an employee going beyond the normal call of duty or making a business-improving suggestion that is not part of their daily job (e.g., participation in a meeting for proposing new ideas).

“These are the most common exemptions available to NI businesses this Christmas,” added Gary Laverty, “but there are plenty of other ways in which companies can maximize tax efficiency throughout the year – from both a company and employee point of view. As always, we would advise companies to keep very accurate records of costs and event attendees (where relevant) to support their tax relief claims, in the event that HMRC should ever require more information on what costs have been claimed. As long as the company can demonstrate that the event, gift or award meets the relevant criteria for tax relief, there are definitely savings to be made.”

For information on any of the above tax efficiency tips, call Exchange Accountants on 028 9263 4135 or send an email to [email protected].

Established in 2011, Exchange Accountants provides premier accountancy services and tax advice to a wide variety of companies and individuals, with a specialism in digital and cloud accountancy services., visit www.exchangeaccountants.com.

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