Many employers like to reward their employees at Christmas – whether it be a party (and/) or a gift. However, the tax office is for life, not just for Christmas and unwary employers can fall foul of tax rules if the gifts aren’t of the correct sort and cost.
The main rules are:
- An annual event, such as a Christmas party, paid for by the employer and made available by to all employees, is tax free for the employees as long as the total cost does not exceed £150. It is to be noted that this amount is not an allowance – if the cost exceeds £150, then a tax charge arises on the full cost for each attending employee.
- Of course any Christmas get togethers for 2020 are unlikely to be in person and HM Revenue & Customs have confirmed that the exemption extends to virtual parties – thus the provision of, say, hampers to employees attending the virtual party at their home will benefit from the exemption as long as the total cost is under £150
- If hampers and the like are provided to employees who do not attend the virtual party, then the “trivial benefit” rules will need to be considered
- Some gifts – called “trivial benefits” are also exempt from tax and can also apply at times other than Christmas. For this exemption to apply the gift:
- Must not be cash or a cash voucher
- A gift voucher, which is only exchangeable for goods or services, can be a trivial benefit. Gift cards from High Street brands will almost definitely meet these requirements
- The cost must not exceed £50
- The provision is not a contractual entitlement
- More than one gift can be provided each year, but if the gifts are to a director or members of a director’s family, then there is an annual £300 limit
- A cash payment or a voucher exchangeable for cash, is liable to tax and NIC through the payroll and may not be the most tax efficient way to recognise your employees at this time of year.
A final option, if none of the above options apply, to consider is the use of a “PAYE Settlement Agreement” whereby the employer pays the tax on behalf the employees.
As ever, talk to us at Robson Laidler if you have any queries.