With only a few weeks left until Christmas parties commence across the UK, employers may be starting to look at gifts and benefits for their employees. The giving of a Christmas present to employees is a tradition which gives great feel good factor to both parties. However, when considering providing a gift or benefit at Christmas time, employers need to be aware of the tax implications on those gifts, which may be classed by HMRC as Trivial Benefits.
So what exactly can employers give without having to pay tax?
HMRC state that you don’t have to pay tax on a gift or benefit for your employee if all of the following conditions are met:
- The trivial benefits costs you £50 or less to provide to your employees
- It isn’t part of their contract of employment with you
- It cannot be cash or a cash voucher (exchangeable for cash)
- It isn’t classed as a reward for their work or performance
If the above criteria is met, it is classed as a trivial benefit and as such doesn’t need to be reported to HMRC.
Trivial Benefits don’t just apply at Christmas time, they can be for flowers on special occasions for employees, summer parties, meals out or bottles of fizz.
Tax is only payable once the benefit exceeds £50 and tax is payable on the whole amount not just what is in excess of the £50. In those circumstances gifts or benefits are taxed in the normal way, subject to any other exemptions or allowable deductions.
In situations where the individual cost cannot be estimated accurately due to being a group event, calculating the average cost per employee is acceptable.
HMRC gives this example:
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
Trivial Benefits will not apply to the following circumstances:
- Employers paying for a working lunch for employees – this is not classed as a benefit or a gift as the meal has been provided because of the work they are undertaking.
- Gifts, incentives or events related to performance targets or results – the gift is given in recognition of the targets met and so the tax exemption cannot apply.
- Gifts, incentives or events in relation to employment services e.g. team-building events – the day is given in recognition of the services provided and to promote team building and so the exemption cannot apply.
If you are looking for tax advice for your business, why not give us a call on 01244 400315 for a no obligation and informal chat, or email us [email protected].