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As the festive season approaches, business owners may be considering parties or gifts for their loyal employees. However, tax experts are issuing words of caution, to be aware of tax which may be liable on Christmas celebrations.

The staff Christmas party has strict criteria to avoid being reported as an employee benefit on form P11D. The party must be offered to all staff, be an annual event rather than a one-off occasion and the cost per head to the company must be below £150, including all extras. The party may be one affair for all staff at the company, or several smaller parties so that all staff are invited, ensuring compliance with the criteria. If the total cost of the celebrations cost the business more than £150 per head, the whole cost will have to be declared as a benefit.

Buying Christmas gifts for employees may also be a complex affair, as the criteria depends on whether your business is a limited company, a partnership or whether you are a sole trader. Sole traders who give a genuine gift to an employee don’t have to declare the present as a benefit on form P11D. However, partnerships or limited companies are treated differently, depending what the gift is. A hamper, food or groceries will have to be included on form P11D, which will result in Class 1A National Insurance Contributions being payable on the value of the gift. However, there is some good news for businesses distributing gifts this Christmas; the gifts are classed as an expense which is tax deductible.

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