Christmas is just around the corner, which means it’s time for an annual refresher (and look at what’s changed) on the tax exemptions surrounding presenting your employees with gifts, bonuses, and the ever-popular Christmas party.
Though these rules apply to all businesses, in this article we are going to focus on how small and medium-sized business (SME) owners should think about these employee benefits in order to maximise the value, and fun, for your employees, while keeping both your and their tax liabilities to a minimum.
Christmas gifts given by you (your business) to your employees have a whole host of rules surrounding them from a tax perspective. To avoid sucking all the Christmas cheer out of yourself too early into the season, we recommend you get to know these rules as soon as possible.
You can give each of your employees non-cash gifts up to the value of £50 per year so long as they are deemed to be ‘trivial benefits’ by HM Revenue and Customs (HMRC). An example of trivial benefits within this price range include a Christmas turkey (or an equivalent vegetarian or vegan item), and a standard bottle of wine.
Of course, problems begin to occur if you gift your employees an item that HMRC may not deem to be a trivial benefit; such as a Christmas turkey hamper, or a fancier bottle of wine. Unfortunately there are no defined rules over what benefits HMRC do and do not consider to be trivial, therefore it’s up to you and your accountant to use your own judgement.
Christmas bonuses given in cash are always going to be taxed, regardless of their size. Any cash gift you give to an employee will count towards their standard earnings and will be taxable under PAYE (and Class 1 National Insurance Contributions) along with their other earnings. The same applies to vouchers, to the full value of the vouchers.
You may also give tangible and intangible items to your employees as a Christmas bonus, with the value of these items also being taxed, unless the item in question cannot be resold for cash and the employee receiving it earns less than £8,500 a year. In the majority of cases, this will limit you to giving your employees items with your company logo on them (not just on the wrapping; on the item itself). Keep in mind that, from 6 April 2016, the £8,500 earnings threshold will be abolished.
If you wish to give your employees an item as a Christmas bonus that can be resold for cash, they will be required to pay Class 1 National Insurance Contributions on the value of the item.
We covered the tax implications of hosting a Christmas party in some detail a couple of Christmases ago, so be sure to read that for a more conclusive guide. If you’re after only the facts, we’ll be quick in touching on the main points here.
In order to ensure you keep your tax liabilities to a minimum when hosting a Christmas party for your employees, keep in mind:
The total cost of all parties you host in a given tax year must not exceed £150 per head, including VAT,
If your annual parties do exceed £150 per head, your employees will have to pay tax on the entire amount, not just the value over £150, you must invite every employee working for your business or, for a larger SME, every employee working at a particular location.
Experienced Tax Accountants
To speak with a professional accountant to discuss the most tax efficient way for you to shower your employees with gifts and bonuses this Christmas, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.