What Christmas gift tax implications must employers be aware of?

Christmas gift tax implications

What Christmas gift tax implications must employers be aware of?

Keep your workplace Christmas gifts tax-free.

Don’t get caught out by the taxman’s naughty list this year and follow our guidelines to take advantage of trivial benefits rules for seasonal gifts to your staff.

Under the trivial benefits rules, employers can treat their teams with an item of value that does not count towards taxable income or national insurance contributions. This could be a bottle of champagne, a bouquet or a gift for a wedding.

Whatever the chosen gift may be, it must meet ALL of these conditions:

  • Be no more than £50 in value
  • Is not cash or a cash voucher
  • Is not within the terms of your contract;
  • or given as a reward for work performance

If the gift does not meet these criteria, the employer will need to inform the employee to pay tax on any benefits.

Also, if you are a Director of a ‘close’ company (a limited company that is run by 5 shareholders or less), you should not receive more than £300 of trivial benefits in a tax year.

Feeling festive? What about the tax implications of our virtual Christmas party?

Pre-pandemic, the rules would allow employers to spend a tax-exempt £150 per head towards the cost of the annual Christmas party.

However, COVID-19 has halted the office party and, many employers will be looking to move their festivities online. With an array of activities available for employers to boost morale after a tough year, such as cocktail masterclasses and ‘live’ entertainment, all from the comfort of their team members’ living rooms.

On 20 November 2020, HMRC proved they are not the Grinch and delivered clarity on virtual parties, which are eligible for the same tax exemptions as the traditional office party:

“Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties. Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met. It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the event itself and that the event, along with any associated provision, is available to employees generally. We will be updating our GOV.UK guidance shortly.”

Prashant Malde, Senior Tax Manager, has had similar conversations with his clients in recent weeks. He advises “that whilst the £150 tax exemption will be available for virtual Christmas parties this year, all the conditions of the tax exemption will apply e.g. the virtual Christmas party should be made available to all employees. Employers should also be careful to only provide items for the event and not include contentious items, such as expensive gifts which give an enduring benefit, which could result in the inadvertent withdrawal of the tax exemption”.

A reminder that after the festivities are over, 31 January is the deadline for self-assessment. Do not get caught out with penalties on top of a hangover, and submit your self-assessment on time.

 

If you have any queries regarding the Christmas gift tax implications or need help with your self-assessment, please contact our team here.

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Tim Cook
Partner at Wilder Coe
Tim’s passion lies in helping his clients maximise their wealth through successful tax planning for the future. Whether you are seeking a solution on the most efficient way to implement your inheritance plans or would simply like some plain-English advice on your tax liabilities, Tim is expertly placed to offer you a highly professional and personalised service.