Contractors' Questions: Is it too late to host a tax-free Christmas party?

Contractor’s Question: How does the new ‘trivial benefits exemption’ work, and can I use it to buy a tax-free (belated) Christmas gift for my PSC's only other employee apart from me?

Separately, as my company was too busy in December to have a celebratory meal for the business; can we have this party (of sorts) in March instead, or do tax rules restrict it to the festive season? 

Expert’s Answer: A Christmas party in March? Better late than never I suppose. Fortunately for you, the tax rules governing this type of expenditure are not seasonally-specific.

As you have correctly suggested in your question, you are in fact referring to two quite separate and distinct pieces of tax legislation. 

Turning first to the Xmas Party, the rules specify that a company may hold an “annual event” for its directors and staff -- the costs for which may be treated as a valid business expense by the company while also being exempt from a benefit in kind charge for the attendees, PROVIDING that the cost of the party does not exceed £150 per head (including VAT and all associated costs such as transportation to the event). 

Interestingly, the limit of £150 per head is an annual limit. This means that, in theory, you could hold two events in the year, providing together that they do not exceed £150 per head in total. It almost goes without saying, but please note that the expense must actually be incurred as HM Revenue & Customs will not accept a cash substitute claim for any such event.

Turning now to the second gesture of goodwill by HMRC -- that being the tax treatment of a 'trivial benefit in kind'. Providing the benefit is NOT provided because of a contractual obligation or work performance, then any 'gift' under £50 may be treated by the company as “trivial” and not reported as a benefit in kind on the employees, including directors. Typically, this may be a meal or a bunch of flowers to celebrate a birthday, but NOT for achieving work, like a specific sales target.

However, where the company is a 'Close Company' (controlled by five or fewer individuals), then HMRC has placed a trivial benefit in kind annual limit of £300 per employee (including directors) on such expenditure. Once again, the value of the benefit must include VAT and all associated costs. But note that this is an annual limit, so it is only the excess over £300 that will become taxable on the recipient.

The expert was Barry Roback FCA, a director at the Anderson Group, an accountancy firm specialising in contractor tax affairs.