With the festive season fast approaching, Christmas parties and gifts for employees and customers will no doubt be on the minds of many businesses. However, if tax relief is to be achieved there are many rules and regulations to be followed.
Gifts to Employees
All gifts will be tax deductible as an expense for the business. If the gift is a cash gift, the employee will have tax deducted as though the gift is regular earnings, and employers NIC is payable on the gross amount of the cash gift, and the employee will have national insurance and tax deducted on that gift. For example, if you give a cash bonus of say £100 to a basic rate employee, this will cost you as an employer £113.80 (less the corporation tax), and the employee will only receive £68 (after employees NI and tax).
However, you may wish to consider a non-cash gift known as a Trivial Benefit. The benefit is exempt from being taxed as employment income if all the following conditions are satisfied:
- the cost of providing the benefit does not exceed £50
- the benefit is not cash or a cash voucher
- the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
- the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
This could be, for example, in the form of a hamper or a shop voucher. A good example of this is a voucher which can only be exchanged for goods but may be used in many stores, for examples of such vouchers please see the following link: https://www.one4allgiftcard.co.uk/
By comparison, providing a trivial benefit of say a John Lewis Voucher of £50 would cost you as an employer £50 (less the corporation tax) and the employee would receive £50 as a voucher, and not be subject to employees national insurance or tax. Likewise the employer would not be subject to employers national insurance.
It may also be interesting to note that trivial benefits may be used at any time of the year and there are no limits on the amount of times these may be provided to employees in the year, for example for staff birthdays.
Directors count as employees, but they may only receive a maximum of £300 per year in these trivial benefits. Therefore this is as equally beneficial for Directors.
Gifts to Customers
Gifts to customers are only allowable as a tax deduction if:
- the total cost of gifts to any one individual per annum does not exceed £50
- if the gift bears a conspicuous advert for the business
- the gift is not food, drink, tobacco or exchangeable vouchers.
However, samples of a trader’s product are allowable even if they are food, drink or tobacco.
Christmas parties are tax deductible as long as they meet the following criteria:
- £150 or less per head
- Annual, such as a Christmas party or summer barbecue
- Open to all of your employees
This allowance applies to ‘annual parties’, therefore if you have already entertained your staff during the year, the amount must still be kept under £150 in total to ensure the amount remains tax deductible. If the total annual expense for the employee exceeds £150, the total cost of the event is no longer tax deductible, not just the cost that exceeds the £150. All of the costs become taxable as a benefit in kind, requiring a P11D submission to HMRC for your employee.
It is also important to note that the cost is per employee, therefore if partners of employees are invited to the Christmas party, the cost of the partners will have to be absorbed within the £150 limit per employee.
For further information, please feel free to contact the team at Spirare.