I’ll keep this fairly brief, just with a few notes about tax-free benefits from HMRC, but firstly I’d like to wish you and yours a very Happy Christmas.
So… what tax-free benefits are allowed by HMRC.
HMRC – Scrooge or Santa?
We may have a picture of the taxman (or taxwoman of course) as flinty-hearted, tight-fisted and mean. “They don’t let you get away with anything, however minor”, and people have sleepless nights about them. We try to keep Chamberlains’ clients on the straight and narrow – there are plenty of other things to worry about – and we offer a scheme to cover our fees in the case of any possible investigation (please ask for details if you’d like to know more).
However, there are a couple of benefits that can be offered by employers – things that both reduce their taxable profits and are tax-free for their employees. Christmas parties have long been possible but there’s now something useful called a Trivial Benefit.
Did you know that an employer can give his/her staff a Christmas party without any tax effect on the staff? And it’s tax allowable for the company. Normally when an employer gives something to an employee it has to go through the payroll or appear on a P11D as a taxable benefit. But this doesn’t apply to the Christmas party, so long as doesn’t cost more than £150 (inclusive of VAT) per person – and partners/guests can be included as another £150 allowance each.
In fact, it doesn’t have to be a party at Christmas – it could be in the summer instead if preferred. Or you can have one at Christmas and one at another time of year, so long as they don’t go over the £150 limit. If they do, the full amount is taxable, not just the amount over £150. Taxis home and any overnight accommodation have to be included in the calculation.
More good news! The basic rule is that an employer can now provide an employee with “trivial benefits” such as a meal out, a box of chocolates or a bunch of flowers without having to put it on their P11D – which avoids it being taxed or subject to any sort of Nation Insurance. It’s also tax-allowable for the employer – in other words they can claim it as a deduction against their taxable profits.
Three key conditions:
- It mustn’t cost more than £50
- It mustn’t be a reward for services or in any way contractual
- It can’t be in the form of cash or a cash voucher
These are evidently designed to make sure that employers don’t divert taxable pay into trivial benefits. There’s theoretically no limit as to how many can be given in one year, but regular gifts would be seen as part of an employment package, and there’s a maximum of £300 in any year for directors.
Birthday celebrations seem to be fine, and they can be grouped together for several employees to enjoy a joint meal, for example. Sporting events could be other good opportunities (I nearly said “excuses”) for a bit of generosity – whether to drown our sorrows or share our (rare) joys. You might even get some interest in political elections!
It’s an opportunity for employers to use their imaginations: gift tokens or cards, concert tickets, a personal training session, etc. But you can’t try to get round it by linking several gifts to make up the cost of a £150 balloon ride, for example. As with so many things, you shouldn’t abuse the system!
And that’s all I want to say this month – apart from a reminder about tax returns if you haven’t yet done yours. The absolute deadline is at the end of January, but we can’t guarantee to help unless you get us the information immediately after Christmas.