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T is the season to be jolly, and it’s that time of year when employees can look forward to an extended break, and if they’re lucky, a Christmas party! But what do employers need to be aware of when it comes to providing their employees with benefits over the festive period? In this article, I hope to shed some light on the key things you need to be aware of when it comes to functions and gifts, so you can ‘ jingle all the way ’ into the festive season. Let’s start with the parties A common perk for employees is an invite to a Christmas party. This allows companies to get all staff members together to celebrate the festive season. But what do employers need to be aware of, to ensure this perk doesn’t become ‘ taxing ’ on their employees? How much can an employer spend? A tax exemption is available for annual functions, up to £150 per head. This is specified at section 264 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003, which can be accessed here: https:// ow.ly/1SZB50XmobA. The top takeaways here are that: l this is an exemption, not an allowance l the value is truly per head, and not limited to employees only, so should include partners, children, etc. Is this limited to one party a year? The exemption applies to ‘parties and functions’ (which I’ll refer to as an event / events), so more than one event can occur. The top takeaways here are that, in a tax year: l if only one event takes place, the cost per head mustn’t exceed £150 l if multiple events take place, for example, a summer barbecue and a Christmas party, the cost per head must not exceed £150 for both events. What’s covered by the exemption? The cost per head of the event must include: l the value of the event itself l any transport provided l any accommodation provided l any value added tax incurred on any of the above.
“By using the trivial benefit exemption, you could provide your employees with a turkey ready for Christmas dinner, a gift hamper, bottles of wine or a magazine subscription”
Providing a gift that isn’t so trivial If you really want to spoil your employees this festive season, and wish to spend over the trivial benefit exemption of £50, what happens then? Hey, big spenders! Let’s explore what options employers have when it comes to events or gifts exceeding the above exemptions. The first option would be to report the cost of the event or gift to HM Revenue and Customs (HMRC) as a taxable benefit in kind. This would be done via a P11D, or through real time information if you’ve registered to payroll benefits. This results in a tax charge for the employee, and a Class 1A National Insurance (NI) charge for the employer. I’m sure employers wouldn’t want their employees to pick up the tax bill of attending an event or receiving a Christmas gift, so the second option would be for employers to have the event or gifts covered on a pay as you earn (PAYE) settlement agreement (PSA). PSAs allow employers to cover the tax and NI liability on behalf of their employees. They make one annual payment to cover all the liabilities on minor, irregular or impracticable expenses or benefits. By adding rewards onto a PSA, employers’ payroll teams or their agents, don’t need to complete P11Ds. The employer will pay Class 1B NI as part of the PSA. An employer can apply directly to HMRC for a PSA, or an agent can do so on their behalf. The easiest way is to apply online using a Government Gateway user ID, but you can also apply by post. Details of both options can be found here: https://ow.ly/ XvXq50XmElW. Enjoy your festive period! I hope this article has provided some clarity around putting on a party or providing gifts to your employees this festive season. From the policy and Advisory Service teams at the CIPP, merry Christmas and have a happy new year! n
per head exceeds £150 combined, then only one of the events can be covered by the exemption. Using the above example to highlight this, if the summer barbecue cost £50 per head, and the Christmas party cost £110 per head, the employer would be savvy to use the exemption for the Christmas party, and the summer barbecue would need to be dealt with separately. Read on to find out what needs to happen when events exceed the exemption value. If parties aren’t your thing, how about a gift? If employers wish to provide a gift to their employees to celebrate the festivities, then using the trivial benefit tax exemption may be suitable. This exemption is specified at Section 323A of ITEPA 2003. This can be found here: https://ow.ly/ienq50XmCRc. There are four conditions that must be met for the exemption to apply. These conditions are: l the benefit isn’t cash or a cash voucher l the cost of the benefit doesn’t exceed £50 l the benefit isn’t provided as part of any contractual obligation (including under salary sacrifice arrangements) l the benefit isn’t provided in recognition of services performed, or anticipated to be performed, by the employee. There’s no limit on the number of trivial benefits provided to employees throughout the tax year. Typically, the benefit would be triggered by an event, for example, a birthday, Christmas or the birth of a child. However, for directors or other office holders (or a member of their family or household) of ‘close’ companies, the rules are slightly different, in that they can’t receive trivial benefits of more than £300 in a tax year. By using the trivial benefit exemption, you could provide your employees with a turkey ready for Christmas dinner, a gift hamper, bottles of wine or a magazine subscription. The possibilities are endless, providing you meet the above four conditions.
Going above £150 If multiple events take place and the cost
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| Professional in Payroll, Pensions and Reward |
Issue 116 | December 2025 - January 2026
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