With the Christmas holiday period looming, and the possibility that we can celebrate within the restrictions with work colleagues, family and close friends wouldn’t it be nice to know that some of the festive cheer was funded tax-free.
What tax-benefits are available
There are two ways that an employer can fund gifts and benefits this Christmas without creating tax issues for either party. An employer would be funding an annual Christmas party or be making gifts subject to HMRC’s “Trivial Benefit” rules. More on both of these schemes below.
The Annual Christmas Party
A major constraint on organising a Christmas party this year is the issue of social distancing. We will have to wait and see how much flexibility we have when revised guidelines following the end of the second lock-down are clearly understood.
How much can employers contribute to an annual bash tax-free?
As long as all employees are invited and it fulfils the definition of an “annual party” rather than a one-off celebration, then employers should be able to provide up to £150 per head, tax-free. Complications arise if more than one sponsored event is funded each year, but essentially, as long as the average cost per head does not exceed £150 (including VAT), no tax issues should arise.
HMRC have also confirmed that, subject to the usual rules, the costs of providing a virtual party for staff will be eligible for the £150 per head exemption.
The so-called “Trivial Benefits” rules dictate the scale of gifts that can be made to employees tax-free. In most cases, gifts will qualify if the following conditions are observed:
- The average cost per head (for groups) or individual cost of a gift cannot exceed £50.
- The gift cannot be cash or a voucher convertible into cash.
- The gift cannot be a contractual obligation including a part of a salary sacrifice arrangement.
- The gift cannot be a reward or recognition for a particular service provided as part of employment duties.
Additionally, directors and their family members are restricted to annual limits of £300 for all Trivial Benefits provided in a tax year. This limit does not apply to other employees.
These exempt gifts can also be made to employees and members of their family or household.
For employers that are able to fund these gifts this is an excellent way to spread a little good cheer this Christmas.
Happy Christmas and fingers crossed for a return to normality in 2021
2020 has been a challenging year on many counts. We have all been touched, to one degree or another, by the effects of the COVID-19 virus. Let’s hope that the promised vaccines and other interventions allow us all a return to pre-COVID times next year. Please accept our good wishes and please call if you need help with any business issues that need to be resolved in 2020.
PLEASE NOTE THESE CONCESSIONS ARE ONLY AVAILABLE TO EMPLOYEES (INCLUDING COMPANY DIRECTORS) THEY DO NOT APPLY TO THE SELF-EMPLOYED (SOLE TRADERS OR PARTNERS) ALTHOUGH THEY WOULD APPLY TO THEIR EMPLOYEES.