Keep your workplace Christmas gifts and celebrations tax-free.
Want to avoid the taxman’s naughty list this year?
Follow our guidelines to take advantage of trivial benefits rules for seasonal gifts and parties for 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.
Whether the gift is a bottle of bubbly or a box of chocolates, here is a quick reminder of the rules for the 2021/22 tax year.
The gift must meet ALL 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 you are a director of a ‘close’ company – a limited company run by 5 shareholders or less – you must not receive more than £300 of trivial benefits in a tax year.
If you are planning on treating your employees to a party this year (and make up for the lack of last year!), there are tax exemptions available if the event is all the following:
- an annual party or social function, such as a Christmas party or summer barbecue
- it is open to all employees(or all employees based at one location)
- the cost does not exceed £150 per head(inclusive of VAT)
HMRC have confirmed that Virtual Christmas Parties are eligible for the annual function exemption.
The £150 per head limit applies to everyone attending the party, not just employees. So, if you allow guests, the total cost must be divided by the total number of attendees.
The total party cost is for the whole event from start to finish. The £150 per head should include food, drink, entertainment, overnight accommodation etc.
Be aware that the £150 limit is not an allowance. It is an exemption. If you go a penny over, the total cost becomes taxable.
Tax Supervisor, Jamie Muirhead expresses that “while the above exclusions provide favourable tax treatment for specific items; the taxman does not prevent larger gifts or parties.
If the benefit does not meet the exclusions, there may be some tax due. This is paid through the usual payroll procedure or via a P11D, depending on the type of benefit.
PAYE settlement agreements are also available where the Company would like to pay any tax liability on the employee’s behalf.”
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.