Christmas is fast approaching us. You may be considering rewarding your employees for their hard work over the last year with a tax-free gift or a staff Christmas party. We are often asked by employers about the tax treatment of this act of festive giving.
How to give tax-free gifts to employees
You can gift a Benefit in Kind (BiK) to your employees and won’t be subject to tax if:
- 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
- The benefit is not provided in recognition of particular services performed by the employee as part of their role
- The cost of providing the benefit doesn’t exceed £50 (including VAT)
You may wish to give your employees a present, a Christmas hamper, a bottle of wine or even a nice box of chocolates. 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 NIC 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.
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.
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)
- 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 NIC).
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).
Your employees can save tax of £10 for basic rate taxpayers and £20 for higher rate taxpayers each time you, as their employer, give them a trivial benefit gift. Officers of a close company can save up to £135 in tax.
If you would like more information or any advice on how to give gifts to your employees or tax-free staff parties then please contact Ann Bibby on 01295 250401 or email firstname.lastname@example.org. You can also contact us here with your query and we will get back to you.