Whether it is a traditional Christmas party or a festive gift, many employers will be looking to reward and thank their staff at the end of the year, but don’t let your goodwill result in a tax bill for your employee! This blog covers everything you need to know about the rules and allowances for tax-free festive giving.
Tax free gifts and parties
As the festive season approaches, many employers seek thoughtful ways to recognise their team’s hard work over the year. An event or a gift is a meaningful way to show your appreciation. However, it’s important to consider that HMRC has specific rules about tax-free gifts for employees.
Understanding taxable benefits
In the same way that other benefits such as health insurance need to be listed on employees’ P11D each year to calculate the tax they need to pay on the value of it, Christmas parties and gifts will also be considered as taxable benefits. However, there are some rules that mean they may be exempt, so your employees can enjoy the festivities without having to pay for them.
Exemptions for Christmas parties
Christmas parties will generally be exempt from benefit in kind tax if they meet the following criteria:
- They are an annual event
- They are open to all employees
- The total cost is less than £150 per employee
Remember that this £150 limit is an annual spend, so if you throw a Christmas party and a Summer BBQ, you’ll need to consider the total cost of both events. If together they exceed the £150 allowance, you’ll need to report one of them as a taxable benefit. Don’t forget that any accommodation or transport provided must also be included when calculating the cost.
Cash bonuses and monetary gifts
You may plan Christmas bonuses or monetary gifts, but be aware that anything paid as cash will be treated as taxable earnings and the recipient will have tax and national insurance deductions made in the usual way.
Trivial gifts
Gifting seasonal goods, such as chocolates or wine is another good option. As long as the total cost is considered “trivial” (typically less than £50) then no tax will apply. This applies per gift so there is some scope to give more than one gift throughout the year if you wish to. Gift vouchers, as long as they cannot be exchanged for cash, would also be considered trivial. To be a trivial gift it must be:
- A gift, and not linked in any way to their performance
- Not expected as part of their contract, so you could not give gifts vouchers instead of their regular salary in the hope this reduces their tax liability
Higher limits for directors and third party gifts
For directors, the same principles apply but with a more generous annual cap of £300 for trivial benefits, rather than £50. Employee who receives a gift from a suppliers, customers, or other third parties, can generally accept gifts up to £250 in value before being taxable.
Exceeding exemptions
Be aware that if the exemptions are exceeded by even one penny, the whole amount becomes taxable. It is not an allowance. If you know that any of your festivities are going to incur a tax liability for your staff, you can instead cover this yourself as the employer so that there is no cost to your teams, by agreeing a PAYE Settlement Agreement with HMRC.
Additional ways to reward your employees
Christmas parties and gifts are just a couple of ways that you might recognise and reward your staff, but there are other perks and benefits you might consider at this time of year to support your staff.
- Offering flexibility to attend the school events, or time off for Christmas shopping
- Providing discounted gym memberships, cycle to work schemes or providing free healthy food options
- Being aware of workloads and stress, and offering appropriate support
All this will help your teams reflect on how they feel about working for you as they come back after the Christmas holidays and into 2025.
If you have any questions or need further assistance with tax-free festive giving, feel free to contact us at [email protected] or 01256 32428.