With the cost-of-living crisis hitting hard for many, a number of employers have been weighing up their options when looking to ease this burden over the coming winter months. UNW’s employment taxes partner Lee Muter looks at the key considerations for employers planning to gift their employees this festive season.
Employers may be considering a number of options such as:
- One-off bonuses;
- Benefits which qualify as being trivial and are tax free;
- Small loans and public transport assistance;
- Annual events and providing free or subsidised food on the employer’s premises.
While most of these will be welcomed by the majority of employees, employers need to be aware of some hidden traps depending on what they look to provide. Unfortunately, even at Christmas, goodwill payments to employees are not always exempt from the tax and National Insurance legislation, and in addition could end up causing more issues for the employee.
The following are some of the main financial implications that employers will need to consider when giving certain Christmas gifts or rewards to their employees.
One thing an employer should be cautious of this Christmas is giving out bonuses to any employees who are in receipt of Universal Credit. Whilst this might seem like a generous idea at first, it could inversely affect the employee if they are receiving State benefits such as Universal Credit. Universal Credit payments vary with the amount a person, or their partner, earns. The amount an individual earns is shared between HMRC and DWP with any increases in an employee’s net pay resulting in a potential loss of Universal Credit. As the amount of Universal Credit can reduce by 55% over a certain amount, and can reduce to nil (depending on the value of the bonus) leading to the claimant having to make a new claim, employers need to be sensitive to adversely affecting employees. As employers will not always have knowledge of the employees who receive State benefits, care is needed to make sure that any undue implications can be identified early and communicated correctly.
Some employers may consider gifting employees a festive hamper for Christmas, or may be more creative and provide (say) a new air fryer to help individuals make savings on energy costs, or look to provide supermarket vouchers to help with the employee’s weekly shop. With that in mind, employers could potentially provide these tax free if they meet the following conditions to be classed as trivial benefits:
- The gift does not exceed £50 (inclusive of VAT) per employee;
- The gift is not cash or a cash voucher;
- The employee is not contractually entitled to the gift; and
- The gift is not a reward in recognition of an employee’s duties.
The £50 cost is per gift, rather than an annual one-off exemption. However, if an employer were to start making regular gifts to employees (i.e., monthly) then this could be questioned by HMRC if they believe it is instead akin to disguised salary (i.e., the gift has been provided instead of, or alongside, salary). Also, employers should make sure the reason for the gift is in fact not in ‘recognition of the employee’s duties’ as there can be common misconceptions of what this means and how HMRC interpret a ‘reward’.
Vouchers for goods and services (not cash vouchers) can also be considered under the trivial benefit rules as a gift. However, if the voucher exceeds the £50 limit, then they would either need to be reported to HMRC on a P11D form or via their PAYE Settlement Agreement (PSA).
Loans and public transport assistance
A possible way to ease an employee’s financial commitments this winter, could be to purchase a benefit which they would usually pay for, and allow them to ‘make good’ the payment through payrolling monthly deductions. These could include benefits such as transport passes for employees to get to work. However, in order to ‘make good’ a payment there will be certain deadlines in which the full cost must be reimbursed so that tax and NIC on the benefit are reduced. If these deadlines are missed then there could be tax and NI implications on the full cost of the benefit, therefore proper payment plans should be put in place to avoid these consequences
Similarly, instead of paying for a benefit directly, an employer could make a small beneficial loan to employees to get them through the winter months. There is an exemption for ‘small loans’ if the total outstanding amount for the tax year in which it is received does not exceed £10,000. The exemption also includes if the loan is made interest free.
Company Christmas party and free/subsidised meals
The provision of food and drink to employees at any employee-only event is usually a taxable benefit in kind, unless one of two concessions apply:
The annual Christmas party is one of the annual events that most employers will provide to celebrate with their employees before the holidays. The employer Christmas party may come under the ‘annual event’ concession. As long as the Christmas party happens every year, is provided for all employees and costs less than £150 per head (including of VAT), then the total cost could be exempt from tax and NI. Otherwise, if the party for example is over £150 per head or is exclusively for a certain portion of the employer only (such as for senior management only), then it would be classed as a taxable benefit.
Paying for free or subsidised food (such as breakfast or lunch) on the employer’s premises can also be a good idea and can help with an employee’s food bills. If the food and drink is available to all employees and provided on the employer’s premises, there should be no resulting tax liability.
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