The traditional staff Christmas party is probably not going to happen this year, and so you may want to reward staff in other ways. A gift is a nice way to spread some festive cheer if you can’t get together for a party – but employers should be aware that the taxman doesn’t take Christmas off!
In this guest post, Graeme Lovell, Tax Director at Langdowns DFK Chartered Accountants, explains the tax rules on gifts to staff.
Your staff probably deserve a Christmas thank-you more than ever this year after the trials we’ve all been through in 2020. However, some employers who are used to throwing a Christmas party and are considering what to do instead this year are uncertain about the tax implications of giving gifts. Here’s an example of the kind of question we’re being asked:
“We normally have a staff Christmas bash, but this year for obvious reasons we are not having one. We are looking at giving each member of staff a store voucher and a bottle of wine. What is the maximum tax–free gift value here please?”
As with many tax matters, there’s a simple answer… and a more comprehensive one.
The simple answer is that the maximum tax-free gift value is £50 per head.
The more comprehensive answer is that it depends!
First, let’s look at the conditions that must be met in order to provide tax-free “trivial benefits” such as Christmas presents.
- The benefit must not exceed £50. This applies to each time you provide a trivial benefit, so there is some scope to give a store voucher and a bottle of wine separately, and each will be subject to its own £50 threshold. Tread carefully, as there are anti-avoidance rules which would apply if HMRC could demonstrate that the gifts were “connected”.
- It cannot be a cash payment. However, store vouchers are allowed, providing they can’t be exchanged for cash (in practice, very few can be).
- The gift must not be part of any contractual obligation – so it cannot be catered for in the employment contract, for instance.
- The gift cannot be payment for services that are performed as part of regular employment. For example, you may not reduce the employee’s salary subject to PAYE by the amount you are going to gift.
As long as it’s not cash, the gift itself could be anything, providing the cost is below £50 per head – so store vouchers and bottles of wine are fine.
The golden rule is to be sure not to spend a penny more than £50 – otherwise the full value of the benefit will be taxable.
If any of the staff are directors, the same principles above apply but you can be more generous – there is an annual cap of £300, rather than £50 per trivial benefit.
Is there a way to give gifts worth more than £50, tax-free?
There may be – if you are having a “virtual” Christmas party. The trivial benefits outlined above are in addition to the annual staff entertaining allowance of up to £150 per annum, per attendee. Normally, that is only associated with physical attendance at an actual event such as the Christmas bash you would usually have held and allows for venue hire, accommodation, transport, food and drink.
However, in the current climate, HMRC have now confirmed that – so long as it meets the usual conditions – a virtual Christmas party would qualify for that allowance, too.
So you may decide to hold some form of virtual Christmas party by video link, and permit staff to open gifts you have given them. Those gifts might be food and drink costing more than just the trivial benefits allowance of £50 each.
I appreciate this ‘virtual get together’ might be harder to achieve in some lines of business, but hopefully it is food for thought (no pun intended!)
For more ideas on celebrating Christmas under Covid-19 restrictions this year, check out the Reality HR team’s ideas in our 12 Ways of Christmas blog.