With the festive season now in full swing, many employers will be looking to throw parties and perhaps give gifts to staff as a gesture of goodwill.
As an employer, it’s vital that you know the tax rules and implications associated with both to avoid any unexpected surprises.
HMRC currently offer an exemption for staff Christmas parties, provided that they are annual, open to all employees and amount to no more than £150 per head. For those businesses with more than one office, an annual event that’s open to all staff based at one location still counts as exempt and businesses can also hold separate parties for different departments, as long as all employees can attend one of them.
If an employer provides two or more annual parties or events, these remain exempt as long as the cost per head in aggregate does not exceed the £150 threshold. Should the cost per head exceed £150 in aggregate, then only those event(s) where the total costs are below £150 per head remain exempt – any other events are fully taxable.
Any functions outside the scope of HMRC’s exemption will attract tax on the full cost per head, including VAT, transport and overnight accommodation.
When it comes to giving gifts to your employees at Christmas, there are several rules to bear in mind. There has for many years been an exemption for small and seasonal gifts made by an employer to its employees, the trivial benefits exemption. From 6 April 2017, HMRC firmed up some of the previously ambiguous rules and implemented new statutory rules relating to the exemption – for a gift to qualify for the trivial benefits exemption, all the following conditions must be met:
- The cost of the benefit cannot exceed £50 (or the average cost per employee if the benefit is provided to a group of employees and it is impractical to work out the exact cost per person)
- The benefit cannot be cash or a cash-voucher (non-cash vouchers/store vouchers are now allowed under the exemption).
- The employee cannot be contractually entitled to the benefit (including via a salary sacrifice arrangement)
- The benefit is not provided in recognition of services performed by the employee as part of their employment duties.
To avoid smaller businesses taking advantage of this, any benefits provided to directors or other office holders (or families) of close companies have the exemption capped at a total cost of £300 per tax year.
In the event that any of the above conditions are not satisfied, the benefit will be taxed in the usual way. It’s important to note that if the cost exceeds the £50 limit, the whole of the benefit will be taxed, not just the excess. It’s important to also bear in mind that excessive gift giving over the course of the tax year may be treated as a benefit in kind and employees may have to pay tax on it.
If the benefit or gift you provide cannot be classed as trivial then the value must be worked out, reported on form P11D and the appropriate Class 1 National Insurance must be paid.
Any cash you give to an employee as a Christmas bonus counts as earnings, so you must add the value to your employee’s other earnings and deduct and pay PAYE and Class 1 National Insurance through your payroll, as appropriate.
If any of the events or gifts an employer provides are not exempt, the costs must be reported to HMRC and National Insurance contributions (NICs) will be paid on them.
This must either be reported on each employee’s P11D form, so the employee pays tax on the apportionment, and detailed on the annual Class 1A NI return (P11D(b)), which is paid by the employer, or included in an annual PAYE settlement agreement (PSA), where tax and NIC is paid for by the employer.
As always, with tax matters, you should consult your accountant for advice if you are unsure. We know that during the life time of a business many different opportunities can arise for you to reduce your tax burden. We ensure that you receive proactive advice, considering current rules and regulations, so that you can make those all-important business decisions. To find out more about the exemptions available to you this festive season, or to find out how we can help, contact us today on 01767 315010.