The time of year is approaching when employers like to show their appreciation to staff for their work during the year. So a review of the rules to follow when making gifts in order to avoid an unexpected tax bill is worth considering.
What are the Tax Rules for Staff Christmas Gifts?
The main rule is that the cost of a gift per employee should not exceed £50 and cannot be cash or a cash voucher (e.g. M&S, John Lewis vouchers). Also it must not be expressed to be in recognition of specific good performance and should not therefore be different for different people. It should be noted that this benefit is not limited to Christmas gifts, but that there is no limit on the number of individual gifts that can be made to an employee during a year. However care should be taken as HMRC would consider that a series of gifts during the year which could be seen as a “top up” to salary would be taxable. Sometimes a benefit might be provided to a group of employees so that it is not possible to tell how much is applicable to each one – in this case as long as the average amount per employee is less than £50 there will be no tax to pay.
What are the Tax Rules for Director Christmas Gifts?
So can the directors also benefit from this? The answer is yes, but within limits. Where the company is a typical ‘family-owned’ SME, the owner directors and their family/household can together only receive £300 of benefits in total in each tax year.
What are the Tax Rules for Staff Christmas Parties?
The general rule for an exempt Christmas party is that the cost per head (including partners of staff who attend) should be no more than £150 – this must include the cost of the function, transport to and accommodation at the function and any Vat on these costs. The rule is not only for Christmas parties, but qualifying functions must be annual ones – typically this might be the Christmas do and a summer outing, and as long as the total cost of annual events during a tax year does not exceed the limit they will be tax free, and if there are more than two, one or more can be ignored in arriving at the exempt amount for the others. If the limit is exceeded, the whole of the cost of the event(s) taking the cost over the limit, not just the excess, is taxable on the employees, and should be reported as a benefit in kind on Form P11d – alternatively (to maintain harmonious employee relations!) the employer itself can meet the tax bill by using a PAYE Settlement Agreement. The functions must be open to all staff, or to all staff in a particular department/location. It is also worth noting that if the total cost of the functions exceeds the limit, it is possible to use the “trivial benefits” rules explained above to exempt one or more, although of course the £50 limit will apply in those circumstances.
For more information on this topic, please contact one of our team on 01273 701200 or firstname.lastname@example.org
Author: Peter Hedgethorne, Director
First Published: 21 November 2017
Last Updated: 05 November 2021