As the Christmas season draws closer, a lot of employers will be thinking about what to gift to their employees for christmas. Is a bonus in order or maybe just a couple of bottles of good wine should do? Maybe you don’t even do company Christmas presents.
The joy of receiving a gift from an employer will often be quashed, however, if they are liable to pay tax on it. Conversely, employers probably don’t fancy paying unnecessary tax on any presents they may receive.
Many wrongly assume that all employee job perks are free from tax. Perks which are not included in the salary agreement are classed as a ‘benefit in kind’. There are different categories of benefits in kind and the tax obligations attached to them can vary.
Before you start budgeting for Christmas gifts or cash bonuses, it’s important to work out the tax implications of gifts given to your employees.
As of April 2016, HMRC defined a grouping of non-taxable gifts called ‘trivial’ benefits.
‘Trivial’ gifts must fit within certain boundaries. They must not:
- Total more than £50 per person
- Be gifted in return for a salary sacrifice
- Be a gift of cash or a cash voucher
- Be defined in the terms of the employment contract
- Be a reward for hard work
Trivial benefits for directors or office holders in a close company cannot total more than £300 per tax year.
Alternatively, gifts for employees may be exempt from tax if they can also be construed as an advertisement for the business, like a diary, a mouse mat, or a pen that has the company’s logo on it.
If you’re self-employed, you don’t have to report or pay tax or NI on personal gifts you give to employees.
As aforementioned, there are many instances where the employer or employee may be obligated to pay benefit in kind tax.
Anything that could be perceived as additional income will be taxed.
Benefits like company cars, travel and entertainment, and childcare are all taxable.
If you want to gift your employees a healthy cash bonus at Christmas, this will be taxable. It must be put through the payroll and tax and NI will be deducted as normal.
Generous employers can opt into a PAYE Settlement Agreement (PSA) where they will cover the costs of income tax and national insurance incurred by the benefit on the employee’s behalf.
This PSA can only be agreed on if the benefit is an irregular occurrence and is minor, like a bouquet of flowers.
As well as physical gifts, the annual work Christmas party is taxable under certain conditions.
The party is non-taxable if the entire cost of putting it on, including VAT, taxis, food and drink, accommodation, decorations, and hire of premises, comes to no more than £150 per person.
Any plus ones who are non-employees are also subject to this £150 overall cost.
This non-taxable amount is not discriminatory of company size, so it applies to large-scale companies as well as start-ups of 2 or 3 employees.
The VAT incurred for employees can be claimed back, but not for non-employee plus ones.
If the party is put on solely for directors or partners, rather than being inclusive of all employees in the company, then VAT cannot be recovered. The party must have an open invite for all company employees.
If a penny more than £150 is spent per head, then the cost of the entire party will be taxable, not just the percentage over the £150, so account for this in budget calculations very carefully.
Are There Tax Implications For Your Employee Gifts?
There are rigid guidelines to follow when determining the tax implications of gifts for your employees.
Follow them carefully and you will save both yourself and your employees a lot of money over the Christmas period.
Tax IQ help SME businesses with all things tax-related. If you have a query you’d like help with, please contact us today.