8th December 2020

The festive season is almost upon us and for most employers this season will be like no other, due to the restrictions caused by Covid-19.

While a lot of employers have been looking at ways to replicate previous years parties using a variety of online methods, others have looked to either defer get-togethers until normality is (hopefully) restored later in 2021, or have looked to provide employees with a gift as a gesture for the festive season. However, what can employers provide to employees without extra tax costs applying?

What is the background?
Employers looking to provide their employees with a party or gifts at the festive season need to ensure that their expenditure meets one of the tax exemptions. Failure to do so could result in extra tax costs of up 90% on top of the original expenditure.

What is the issue?
While the focus should be on ensuring the wellbeing and team spirit of their workforce, employers should also ensure that careful consideration is put into their planning, and to the tax impact of some of their festive treats.

What do employers need to consider?
Employers will need to consider the tax implications of providing benefits to employees at Christmas time, so as not to have unexpected extra tax costs.
Typically, employers will be planning to provide some of the following to their employees:

  • Virtual Christmas party using video conferencing;
  • Gifts to employees;
  • Reimbursing employees for “Christmas meal”;
  • Activities (such as chocolate making, cocktails, bingo, quizzes etc); and
  • Providing extra holidays in lieu of a party.

Although HMRC has confirmed that the costs of a virtual Christmas party would potentially qualify under the £150 per head tax exemptions, this statement was tempered by the caveat to the exemptions applied “subject to the normal conditions of the exemption being met.”

As the conditions for the exemption to apply include that it must be open to all, some employers will need to consider whether their furloughed staff are able to attend, without affecting their CJRS claim.

In addition, some employers will be considering whether to provide a gift to employees, such as a gift voucher or festive hamper delivered to employee’s homes. The trivial benefit exemption has a number of conditions which apply, including that the VAT-inclusive cost of the benefit must be less than £50 per employee as the cost of delivery could tip them over the edge of that limit, this would mean that all of the benefit would be taxable.

What should employers do now?
Employers who are planning to provide any benefits to employees at Christmas time should ensure that they are planned to ensure that tax exemptions can be maximised so that it does not end up costing more than they bargained for.

If you have any questions please contact Lee Muter, Employment Taxes Partner, on 07810 852 362 or at leemuter@unw.co.uk or Paul Tucker, Employment Taxes Senior Manager, on paultucker@unw.co.uk or 07392 870 199.

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