The liability before Christmas…

With Christmas fast approaching, as an employer you will want to be conscious of the potential tax implications that can arise around the provision of gifts and entertaining to your employees during the festive season.

Whilst there are no specific allowances given by HMRC in respect of Christmas related items, we have detailed below the normal tax rules surrounding employee gifts and entertaining. Any items not meeting the below exemptions may incur a tax and National Insurance liability which employers are required to report to HMRC accordingly.

Trivial Benefits Exemption

The Trivial Benefits exemption allows employers to provide gifts costing £50 or less to employees without triggering a tax or National Insurance charge and also removes the need to report anything to HMRC, provided all the following conditions apply:

• The benefit must cost no more than £50 per employee
• It is not cash or a cash voucher (i.e. vouchers that can be exchanged for cash)
• It is not a reward for an employee’s work or performance
• It is not within the terms of the employee’s contract

While the above may seem straightforward, employers must be mindful of the form in which the benefit is provided and understand the implications of providing such gifts by reimbursement of expenses.

For example, you choose to treat your employees to a Christmas meal but instead of arranging and paying the meal directly, you may decide to give employees an allowance to cover the cost of a meal either with their team or their family. In this case, although employees will not be given the cash up front and instead will reclaim up to the allowance via expenses, regardless of if the amount is below £50, this would still be viewed by HMRC as a cash gift and therefore failing point 2 under the criteria above. As cash always constitutes employment income, this will be subject to tax and Class 1 National Insurance via payroll with no exemption applying.

The practicalities of the above must be considered, however it is vital employers are aware of the detail HMRC can focus in on.

As a result, the most tax efficient method is to provide employees with a voucher (non-exchangeable for cash) or physical gifts purchased directly by the company costing £50 or less per employee.

Christmas Bonuses

It is the time of the year where employers may look to recognise their employee’s contribution over the year by way of a Christmas bonus payment. As stipulated above, any cash payment to employees will be liable to tax and National Insurance via payroll.

If there is a net amount you wish for your employees to receive, please get in touch to discuss the options to allow for this.

Annual Party Exemption

The annual event exemption typically applies to Christmas parties providing the party is an annual event, open to all employees and the cost falls below £150 per head all in. Where a business has more than one place of work, the exemption can still be considered providing all employees are invited to at least one event, with the total cost across all locations aggregated and compared against the £150 limit.

Understandably, the usual Christmas celebrations may not go ahead as ‘normal’ this year due to the current climate, and as a result confirmation was given by HMRC last year that virtual Christmas parties will be able to benefit from this exemption.

It is important to reiterate that where employers may wish to provide food and drinks for such get togethers, that these are borne by the Company rather than via expense claims from the employees to ensure the exemption can be utilised. Further, the £150 per head is not an allowance and should the event exceed £150 per head the full amount becomes reportable to HMRC and not the value over and above.

If you require further guidance or would like to discuss your tax efficient options to reward your employees this Christmas, please get in touch with Gillian Forrest or your usual AAB contact.