Non-cash Christmas gifts cost less than £50 an item can be considered as ‘trivial benefits’.
As the calendar year comes to an end and Christmas approaches, many small business owners in the festive spirit enjoy giving a token of appreciation to the team members. But before you go and splash out, here are the tax rules you need to be aware of.
- Cash or vouchers which can be converted to cash are not considered as trivial benefits. They are subject to tax and National Insurance.
- Christmas gifts that are less than £50 per head (inclusive of VAT), not considered as a reward for their work or performance, and not stated in the terms of their contract, can be considered as trivial benefits. In this case, they are exempted from tax and National Insurance.
Christmas gift examples
Some thoughtful Christmas gifts that are below the £50 mark and can be considered as trivial benefits include:
- Something traditional: a bottle of wine or a box of chocolate
- Something more personalised: a scarf, a pair of gloves or a personalised mug
- Something popular like small electrical items, anything from portable power banks for phones to adapters.
What about Christmas bonuses?
HMRC is clear on Christmas bonuses – any cash you give to employees as a Christmas bonus means earnings. This means you have to add the value of the bonus to your employee’s other earnings, pay PAYE tax and also National Insurance through payroll.
What about gifts from a third-party?
It is possible for your employees to receive gifts from a third party. For example, you run a bakery and your employees may receive a gift from a flour manufacturer. The gift can be cash, vouchers, cheques or items. What you have to report to HMRC depends on what kind of third-party reward your employee receives and whether you are involved in arranging the reward.
The rule of thumb is that if the cash or vouchers are involved, the third-party must deduct PAYE from the reward and you must deduct National Insurance on the combined value of the reward and the PAYE tax paid on it by the third party.
For non-cash goods, the third-party must account for the tax due on the reward and pay tax and National Insurance. However, if you are involved in arranging the reward, the third party will pay for the tax due and you are responsible for the National Insurance.
As this can get complicated quickly, the best approach is to talk to your tax accountant.
Tax Agility can handle your taxes
At Tax Agility, our small business accountants can provide tax advice concerning Christmas gifts and trivial benefits to all small business owners in London, Richmond and Putney. You can count on us to provide honest tax advice pertaining to:
- Corporate tax
- Employers’ PAYE
- National Insurance
- Business rates
- Income tax (for directors and shareholders)
Give us a call today on 020 8108 0090 or get in touch with us via our contact page to arrange a free, no obligation meeting.
If you enjoyed this article, you might also be interested in:
- Tax rules for staff parties and annual events
- Accounting tips for small business
- Small business: managing rising costs
This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.