🍦Have your company treat you this Holiday season!

Hey friend —

This week’s newsletter is coming to you from Seville, where the team and I are currently on our workation for a little bit of winter sun and team bonding, with lots of nice tapas involved too!

However, as we head into the Christmas period (less than a month away now by the way), a little refresher on how you can have the business by yourself something for the holiday season, as well as the do’s and don’t’s around Christmas parties for tax relief purposes because HMRC will definitely be a Scrooge otherwise!

Trivial Benefits

Did you know directors can access a £300 trivial benefits allowance each tax year? This allowance lets you enjoy tax-free perks, provided each benefit is capped at £50, and the total for the year doesn’t exceed £300. It’s a great excuse to use it come Christmas time if you haven’t done so already.

Here’s what you need to know:

• You can use the allowance multiple times during the year, ensuring each benefit remains under the £50 limit.

• The combined value of all benefits must not exceed £300 within the tax year.

• Gift vouchers, hampers, meals, or even small team-building events are popular options.

• These benefits are exempt from both income tax and National Insurance Contributions (NICs), making them an efficient way to reward yourself.

• Benefits must be occasional, provided as a gesture of goodwill, and unrelated to your regular duties or contractual agreements.

• Keep a record of the date, cost, and purpose of each benefit to ensure compliance with HMRC guidelines.

• The £300 limit is for Directors of Limited Companies; normal employees have the same entitlement as above (i.e. £50 limit) but are not capped at £300 for the year.

• If you have multiple Directors in the business, this is £300 EACH as it’s on an individual basis.

• The ‘reset’ period of the £300 allowance is usually aligned with the UK personal tax year (6th April) as opposed to your company year-end.

• If you have more than 5 shareholders in your business, the £300 director limit doesn’t apply.

This allowance is a great way to reward yourself as a director while avoiding additional tax liabilities. The company will also get corporation tax relief on the expense, but usual rules around keeping your receipts apply like normal.

If you’d like to discuss how this could work for you, feel free to get in touch.

Christmas Parties (and other annual events)

So, the key here is that the event meets all 3 pieces of criteria.

It must be an annual event and something like a summer party, or more commonly, a Christmas party. It cannot be a birthday or a performance reward or something ad-hoc but it could technically be a company birthday, like your company is 5 years old or something like that for example.

All employees must be invited. It cannot be a select few like upper management or just the HR team - everyone must be invited. Not everyone has to attend if they choose not to but the initial invite and opportunity to attend must have been made.

The cost must be under £150 per head (inc VAT) for each person who attends per year. This means you could have a Summer Party AND a Christmas Party, and cap it at £75 per head per event and both would be allowable tax-free, claimable as an expense and no National Insurance to pay.

Okay, so we have 3 golden rules. So what happens if we break them?

If your event costs more than £150 per head, it's still an allowable expense. However, exceeding this limit would trigger a P11D and classify the whole amount per person as a benefit in kind. That means that there would be income tax on the value of the amount which would most likely be adjusted in the employee’s tax code, while the employer would have Class 1b National Insurance to pay at 13.8% of the benefit. It also is not an allowance, but an exemption - so if the party is £160 per head, the whole £160 is taxable as a benefit, not the £10 over the £150 limit - make sense?

The same rule applies above if you break the other two rules - the £150 no longer applies though as it’s not an annual event or not everyone was invited, so now it just becomes a taxable benefit in general unless it’s under £50 per head. More on that below.

But what about if I’m a director-only company or the only employees here are directors? Sole directors can bring a plus one as long as that still falls under the £150 per person eligibility and if you and your partner are both directors of the company then this is also fine too.

On that note, with attendance and more importantly, who can attend, employees (and directors) are able to bring plus ones and they are also factored into the £150 per head amount. The plus one should be a partner or a family member though, although I’m not really sure HMRC are going to start interrogating that deep but just so you know the facts.

Lastly, this is only applicable to Limited Companies - there is no annual Christmas party exemption for sole traders or partnerships. Bah Humbug!

In conclusion, staff entertaining and trivial benefits provide a wonderful way to show appreciation to your team while also taking advantage of valuable tax relief. The holiday season is the perfect time to celebrate and share these perks!

By staying informed about the rules and thresholds, you can create meaningful and memorable experiences for your team while maximizing these tax-efficient opportunities.

Just FYI for Cone’s Christmas hours that we will be shut from Tuesday 17th December 2024 and will return on Monday 6th January 2025.

I wish you all a Merry Christmas and a Happy New Year!

Written and edited by Ben Nacca