With Christmas fast approaching, as an employer you will want to be conscious of the potential tax implications that can arise around the provision of gifts and entertaining to your employees during the festive season.
Whilst there are no specific allowances given by HMRC in respect of Christmas related items, we have detailed below the normal tax rules surrounding employee gifts and entertaining. Any items not meeting the below exemptions may incur a tax and National Insurance liability which employers are required to report to HMRC accordingly.
Trivial Benefits Exemption
The Trivial Benefits exemption allows employers to provide gifts costing £50 or less to employees without triggering a tax or National Insurance charge and also removes the need to report anything to HMRC, provided all the following conditions apply:
- The benefit must cost no more than £50 per employee
- It is not cash or a cash voucher (i.e. vouchers that can be exchanged for cash)
- It is not a reward for an employee’s work or performance
- It is not within the terms of the employee’s contract
While the above may seem straightforward, employers must be mindful of the form in which the benefit is provided and understand the implications of providing such gifts by reimbursement of expenses.
For example, you choose to treat your employees to a Christmas meal but instead of arranging and paying the meal directly, you may decide to give employees an allowance to cover the cost of a meal either with their team or their family. In this case, although employees will not be given the cash up front and instead will reclaim up to the allowance via expenses, regardless of if the amount is below £50, this would still be viewed by HMRC as a cash gift and therefore failing point 2 under the criteria above. As cash always constitutes employment income, this will be subject to tax and Class 1 National Insurance via payroll with no exemption applying.
The practicalities of the above must be considered, however it is vital employers are aware of the detail HMRC can focus in on.
As a result, the most tax efficient method is to provide employees with a voucher (non-exchangeable for cash) or physical gifts purchased directly by the company costing £50 or less per employee.
