Organising the office Christmas party? Don’t let seasonal perks leave you nursing a nasty tax hangov

A new BDO survey has found that 100% of mid-market businesses plan to offer seasonal perks to employees this year but the accountancy and business advisory firm is warning employers to avoid the pitfalls that could land them and their employees with an unexpected tax bill.

BDO’s survey of 500 mid-market businesses conducted in November found that more than a third (36%) are planning to throw a traditional office party this year.

Forty-four per cent are planning to offer employees festive gifts, the most popular perk, while 41% are giving cash bonuses and 32% are granting extra holiday.

In a sign of the times, a third (32%) said they will be handing out vouchers to help staff with the cost of Christmas.

While there are some tax incentives available for employers wanting to treat staff at Christmas, BDO is urging firms to get things right up front.

Staff parties

Current legislation gives companies a tax relief for annual staff parties in the form of an exemption of £150 (or £125 plus VAT) per employee. This can be used for a single festive bash or spread over a number of events in the same tax year provided that each event will recur annually.

Expenditure on qualifying staff parties receives a business tax deduction for the employer and VAT may also be recoverable. Qualifying expenditure also means employees aren’t hit with a taxable benefit in kind charge.

In order to qualify for the exemption, any event should be open to all staff employed at a particular location.

However, if a small group of employees in one location were to hold an exclusive employer-funded Christmas event, this would be a taxable benefit as not everyone at that location could attend.

Employers need to be particularly careful not to exceed the £150 per head limit otherwise employees could be hit with a tax charge for the full amount.   

Gifts

Gifts provided to employees are generally taxable but there is an exemption for ‘trivial’ benefits.

If certain conditions are satisfied and the value doesn’t exceed £50, a gift can be given to an employee without a tax or national insurance (NIC) charge arising. Employers may also be able to recover VAT on the purchase of gifts.

If the conditions aren’t met, the full cost of the benefit is taxed in the normal way.

Cash and vouchers

With a third of employers now planning to give out vouchers to help with the cost of living in these straightened times, particular care should be taken by employers to avoid inadvertently penalising employees.

Generally, cash and vouchers will be treated as taxable benefits. However, to avoid leaving a bad after-taste with employees, employers can pay the tax charge for them through a PAYE settlement with HMRC.

Paul Falvey, tax partner at BDO said:

“It’s encouraging to see so many employers wanting to offer seasonal perks this year after the disruption to the traditional festivities caused by the pandemic but it’s important that this generosity doesn’t backfire.

“The tax rules around parties and gifts are complex. If businesses work within the rules, they can reduce costs and help the seasonal celebrations go with a bang.”

ENDS

Note to editors

The research was carried out by Censuswide who polled 500 C-suite executives from mid-market businesses (£10-£300m revenue). The survey was conducted from 9-22 November 2022. 

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world. 

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy.  

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.  

BDO LLP
BDO LLP operates in 18 offices across the UK, employing 7000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

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The BDO global network provides business advisory services in 164 countries, with 95,000 people working out of 1,713 offices worldwide. It has revenues of $11.8bn.  

Contacts    

Frank Shepherd
Email: frank.x.shepherd@bdo.co.uk
Tel: 07812 463601