As the Christmas period approaches employers may want to reward their employees’ hard efforts through gifts and entertainment such as Christmas parties. If structured properly, these rewards can be exempt from tax.
Gifts which qualify as trivial benefits
Seasonal gifts may include a Christmas hamper, a bottle of wine, a spa voucher, or tickets to various events of the employee’s choice such as arts or sports venues.
If a gift meets the following conditions, it should qualify as a trivial benefit:
- it costs £50 or less to provide
- it is not cash or a voucher redeemable for cash
- it is not in the terms of the employee’s contract
- it is not provided in recognition of work performed
Both employer and employee are exempt from paying tax or national insurance contributions (NIC) on trivial benefits. However, if any of the above criteria are not met, the cost of the gift becomes taxable. It will then have to be reported on a P11D and will be subject to NIC for the employer and, unless a PAYE Settlement Agreement is in place, tax for the employee.
There is no limit on how many trivial benefits can be provided to an employee although the total spend on a director is capped at £300 per tax year.
Social functions and parties
Other staff incentives can include annual events such as Christmas parties where up to £150 may be spent per person without creating a tax liability.
You will not have to report this to HMRC but records should be retained in the event of an enquiry by HMRC.
To be exempt, the party or similar social function must:
- be open to all your employees
- be annual, such as a Christmas party
- cost £150 or less per person
It is important to note that the exemption of £150 per head applies per employee per year rather than by reference to each event. As a result, the exemption can be split between multiple events as long as each one meets the other criteria above.
As many of these events were affected by COVID-19 last year, regulations were updated to allow the rule to also apply to online virtual parties. If the pandemic regulations affects the work party, employers are allowed to spend a similar amount on a virtual event. For example, a party box could be sent to employees homes for them to enjoy whilst participating in a group call.
This is undoubtedly an area that many employers can take advantage of to boost staff morale and express season’s greetings.
If you have any queries or would like to discuss this further, please do not hesitate to contact your Kilsby Williams team member on 01633 810081 or email@example.com.