Giving your staff a Christmas gift
Christmas is fast approaching and, as an employer, you may wish to recognise this in the form of gifts to your employees or a staff Christmas party. We are often asked by employers about the tax implications of these acts of festive giving.
How to give tax-free gifts to employees
It is possible to make a gift to your employees that won’t be subject to tax provided:
- cost of providing the benefit doesn’t exceed £50 (including VAT);
- the benefit is not cash or a cash voucher (these will be subject to tax);
- the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme; and
- the benefit is not provided in recognition of particular services performed by the employee as part of their role.
You may wish to give your employees a present, a Christmas hamper, a bottle of wine or even a gift voucher. As long as it costs less than £50 a head, it won’t be taxable. If the gift exceeds this value, it will need to be reported to HMRC and will be taxable under the normal benefit-in-kind rules. For example, an employer awards a £60 John Lewis voucher to their employee for Christmas. The entire award would be subject to both Income Tax and National Insurance Contributions (NICs) as the total cost exceeds the £50 limit. It is important for you to understand that it is not just the excess over £50, but the full amount that is taxable.
Gifts of this type are covered by the ‘trivial benefit’ rules and there is no limit on the number of trivial benefits that you can provide, as long as it doesn’t exceed £50 each time. However, where you are a ‘close’ company and the benefit is provided to an individual who is a director or other office holder, the exemption is capped at a total cost of £300 for the tax year. This means that your employees can save tax of £10 if they are basic rate taxpayers and £20 if they are higher rate taxpayers each time you, as their employer, give them a trivial benefit gift. If a Director of a close company were to receive the full exempt amount of £300 as trivial benefits then they could save up to £135 in tax if they are additional rate taxpayers.
You can find out more about tax on trivial benefits on the UK Government website.
Tax-free staff Christmas parties
In addition to giving your employees a tax-free gift, you can also throw a tax-free staff party. It doesn’t have to be just at Christmas either, it can be all year round. You can claim for a staff party tax exemption as long as it:
- is an annual staff party or social function for staff, such as a Christmas party or summer social;
- is open to all employees (including guests); and
- costs under £150 per head.
You may want to consider combining both exemptions where you hold a number of social functions and you exceed the £150 per employee. For example, you hold two functions per year for your employees – a Christmas party and a summer party. The Christmas party costs £45 per head and the summer party costs £150 per head. Historically, this would have exceeded the £150 limit for the social functions and parties’ exemption. If the limit is exceeded the whole benefit is subject to Tax (and potentially NICs).
However, the first event could be covered by the trivial benefits gift exemption as the amount does not exceed the £50 limit. The second event could be covered by the social functions and parties’ exemption. Therefore, you can still have two parties, but both would be tax-free (under different exemptions).
If you would like more information or any advice on how to make gifts to your employees or tax-free staff parties then please contact the Tax Team at Ellacotts on 01295 250401 or email email@example.com. You can also contact us here with your query and we will get back to you.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.