What is the background?
As we approach the festive season, employers may be wondering how they can give a little extra to their employees this Christmas without feeling like a Scrooge. Well, it’s not all doom and gloom as there are exemptions that can be applied to certain expenses provided to employees. After all, once the parties over and the gifts are unwrapped, employers don’t want to be left with the potentially not-so-merry tax implications. There are a number of areas to look out for when spreading the festive cheer this year.
What are the opportunities?
Gifts
To avoid the cry of “Bah Humbug!”, employers can find ways to give back to their employees tax-free. A Christmas turkey for Tiny Tim, or a festive hamper filled with tasty treats, could potentially be given tax-free if the trivial benefits exemption applies. This exemption allows for small gifts to be given to employees without any tax or National Insurance implications provided they are £50 or less (including VAT), not a reward for an employee’s duties, not a contractual obligation and not cash or a cash voucher.
Parties
What’s more, for employers who are unable to get the whole office to attend one Christmas party, and instead provide departmental parties, HMRC accept that these can be included under the annual events exemption so long as the conditions are met. If the parties cost under £150 per head, all employees are invited to at least one of the parties, and it is an event that occurs every year, then the exemption could apply. However, if you have multiple annual events in one tax year, then you may have to consider which event would benefit from the exemption more if the aggregate cost per head of each event exceeds £150 as this is not a limit for all events.
Associated costs
The types of expenses included in the cost per head, as per the annual events exemption, are all costs associated with the event. For a Christmas party these may include the Christmas dinner, bottles of bubbly, taxis home, or decorations. If you are looking to budget for the event so that the total cost stays below the £150 per head limit, you may want to consider what costs could be excluded from this. For example, if an employer decides to give out Christmas gifts at the party, this may not need to be added to the cost per head if the trivial benefits exemption applies as well. Furthermore, if you decide to hold the Christmas party at the office itself, then any food or drinks provided on the premises may be covered by the subsidised meals concession instead.
What do employers need to consider?
At the risk of getting a visit from HMRC (the Ghost of Christmas Yet to Come), employers should also make sure they are reporting their taxable employee expenses correctly, as well as utilising exemptions that may apply.
If there are any expenses which you think may not have been reported correctly, you may wish to visit the Ghosts of Christmas Past, such as previous year PAYE Settlement Agreements or P11D forms. Making sure all your books are in order, as Bob Cratchit did for Scrooge, will help you to avoid any lumps of coal in your stockings this Christmas.
As Tiny Tim succinctly said, “God bless us everyone!”.
How can UNW help?
We, the Ghosts of Christmas Present, can provide advice on staff gifts and entertainment. If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
