Chances are as an employer you'll be providing a few benefits for your employees this year. This could include from office parties, to generous bonuses, or a nice holiday turkey. So this all begs the question every accountant is asking this time of year, what's taxable and what's not. So let's start.
Tax exemptions only apply to annual Christmas celebrations that are provided for ALL employees and their guests. The costs of this party cannot under any circumstances exceed £150 a head. If you do exceed this cost by even a penny you'll be tax liable not just for the surplus but for the full cost of the celebration. The only good loop hole is that this rule applies to all guests, not just your employees. That means whoever they bring will factor into the cost. Be careful not to exceed this as you may be responsible not just for the tax but also a national insurance fee than can make the cost hefty.
Gifts and Bonuses
Many companies will provide a nice pat on the back for their employees in the Christmas spirit in the form of a just reward. This may include a nice company issued gift or a cash bonus. In the case of a bonus the employee will be liable for taxes just as they are on all company pay and benefits. The same exact guidelines apply to vouchers as well, in which case they will be liable for the value of voucher on tax day.
“Small” Third Party Gifts
Gifts from small parties will often be received by employees during their day to day work. As long as these gifts are considered “small” or don't exceed a value of £250 they will not be taxable.
Client entertaining usually does not apply as a “business expense” for VAT, entertaining for your employees, however is a different story. For VAT purposes the definition of “employee” does not extend to partners of employees or former employees. Therefore if there are guests you may have to apportion these costs accordingly.
Also, any party or entertaining function that is only provided for directors, owners, or partners is usually not accepted as a business expense.