Pictured: Chris Bond

As another challenging year draws to a close, many businesses are deciding to lift the office mood by organising Christmas parties or giving gifts to staff and customers. 

However, many businesses may not be aware of the tax implications of these festive offerings so, in the last few weeks before Christmas, PKF Accountants & business advisers is warning employers that there may be tax liabilities lurking in the Christmas hampers.

HM Revenue and Customs (HMRC) has historically targeted Christmas staff costs for tax and national insurance contributions (NIC) recovery and, while the tax man is fairly generous for companies holding staff Christmas parties, he is more like Scrooge when it comes to Christmas presents. 

Employers keen to reward their employees' hard work with a Christmas gift should remember that HMRC generally perceives gifts to staff as a taxable benefit. So to avoid the employee who receives the gift also getting a tax bill, the employer may wish to pay the employee's tax on the gift - so, for example, a hamper worth £50 might end up costing the employer £95 in total.

However, gifts deemed as 'trivial' are exempt from tax and HMRC has previously extended the definition of what a trivial gift actually is. Chris Bond, Partner at PKF Birmingham explains: "HMRC views items such as a turkey, a bottle of wine or a box of chocolates as trivial, but a case of wine or a hamper would not be trivial and could be defined as a taxable benefit. Also, employers should avoid giving store vouchers as gifts. Whilst you may think that a £25 voucher would be regarded as trivial by HMRC, vouchers are in fact subject to specific legislation and will be taxable, whatever the face value. If in doubt, businesses should check with their advisers."

Businesses wishing to send a small gift to customers for their loyalty over the past year should also be aware of the tax implications. Chris Bond warns: "Businesses need to be careful when giving gifts to customers. The full cost of the gift - together with the cost of any other such gifts to the same recipient in the relevant tax period - including wrapping, postage and packaging, has to be £50 or less to qualify for tax relief. Also, the gift cannot be food, drink, tobacco or a voucher exchangeable for goods and must include a conspicuous advertisement for the business. 

Fortunately, HMRC approaches Christmas parties with rather more festive spirit. Business owners are allowed to spend up to £150 per head on an annual party before the employees are treated as receiving a taxable benefit; however, the £150 limit must include VAT, venue, transport, entertainment and accommodation costs. In addition, the exemption is an annual limit so the cost of all staff functions held in the tax year must be considered together when deciding whether the limit has been exceeded. 

Chris Bond  added: "Business owners must bear in mind that, in order for the party to be treated as an exempt benefit, it must be open to all employees, or all employees at a particular office. A party for directors or managers alone will not be covered."

"Giving gifts to staff and organising a Christmas party is an effective way to boost morale; however, businesses must plan ahead if they want to avoid an unexpected tax bill in the New Year."

For more information about PKF, please visit their website here: www.pkf.co.uk