A tax guide for staff Christmases

As we approach the festive season, companies will certainly be thinking about thanking their staff by means of Christmas presents and/or a Christmas party. But what are the tax ramifications of this, and what do you need to consider before splurging out?

Obtaining the Perfect Christmas Gift

Typically, giving an employee a gift of any form would in principle constitute a taxable advantage. Thankfully, HMRC have opted against being a total scrooge in this respect, and it is conceivable you can depend on the ‘trivial benefits’ exception.

Benefits that satisfy the following conditions are considered minor:

• The price tag for this perk won’t go beyond £50
• The reward is not cash or a cash voucher
• Salary sacrifice agreements or other contractual obligations do not apply to the provision of this benefit
• This perk isn’t being handed out as a token of appreciation for anything the recipient has done

Any additional little presents given to employees during the year that meet the criteria for “trivial benefits” can be excluded from taxation. Easter eggs, wedding favours, baby shower gifts, and so on all fall under this category. Thank-you presents are not included since they would be considered payment for services rendered.

Care also has to be exercised, as HMRC can contest anything delivered routinely under the trivial benefit exemption, as it can build a ‘legitimate expectation’. An example may be pay-day beverages. HMRC may claim that the insignificant benefit exemption does not apply because of this presumption.

You may give employees presents worth more than £50 without creating a taxable benefit for them, if you want to spend a little more on your staff this year. However, you must include these in a PAYE Settlement Agreement (PSA), in which case you will be responsible for grossing up the tax and national insurance on the benefit and paying it on the employee’s behalf.

There are extra requirements for directors and other office holders of close firms, who will be subject to an annual maximum of £300. Providing a benefit to an employee’s family or household member who is not an employee of the firm will contribute towards the £300 exempt amount. Where the director’s or other office holder’s family or household member is also an employee of the firm, they will also be subject to a £300 cap.

Christmas (and other) parties

As with presents, the giving of a staff Christmas party would normally be seen as staff entertainment, and hence a taxable benefit.

However, HMRC have an annual events exemption, which if the annual event falls under specific circumstances, is free from tax deriving from the benefit supplied. In other words, here are the prerequisites:

• It is an annual event
• All those working there are welcome to attend
• The cost is less-than £150 per head

This discount isn’t just for Christmas, and can be used for many gatherings, such as a summer barbecue and a holiday party. However, the total cost of attendance for all such events cannot exceed £150 per person in the given year. In such a circumstance, any event that takes the cumulative amount above £150 will not be covered by the exemption.

To calculate this price per person you must add up all of the fixed and variable costs associated with hosting the event. Included in this total must be the cost of transportation and any overnight stays given. Next, we split the amount by the number of people who showed up, whether they were workers or not.

If the firm has more than one location, an annual event that’s available to all personnel stationed at one site is nonetheless ‘open to everyone’. As an alternative, you might have separate parties for each division if everyone is able to make it to at least one of them.

How we can help make your company’s Christmas a merry one

Workplace perks and their tax treatment are a nuanced issue. It is crucial that you fulfil all of your regulatory duties and make preparations to reduce your tax burden.

Among the many things we can assist you with are:

• Analysing current pay structures to minimise tax and national insurance contributions
• Creating compensation plans that are both adaptable and tax-efficient for your company’s most valuable workers
• Advantages other than monetary compensation that help workers meet their basic needs
• Creating and filing a PSA for non-exempt benefits

If you would like to learn more about these options – or any other service we provide – please give JW Hinks a call on 0121 456 0190.