Written by Paul Chappell
Published on November 11, 2016

Do such sentiments extend out from HMRC regarding gifts and Christmas functions? Well perhaps surprisingly the answer to this is, for the most part, yes. Have Father Christmas’ little helpers infiltrated HMRC? Quite possibly yes. So what can employers do to reward employees at this jolly time for their sterling efforts throughout the year?

1) Cash Bonus. If the intention is to pay a cash bonus it must go through the payroll and tax and National Insurance applied. However rather than cash consider an alternative such as a gift of a mobile phone. A company mobile (contract in the company name) does not attract tax or National Insurance and the employer gets a deduction from profits. Winner all round!!

2) Christmas Party. Aside from the embarrassment of those photographs, a Christmas Party is the most popular Christmas ‘gift’ provided by employers. As an annual function, HMRC allow employers to spend up to £150 per head. So if spouses attend they get their own spend of £150. Word of caution though. If there is also a summer ball this will probably take the spend above £150, and the ‘annual function’ could be challenged. Spend £151 per head and the whole amount becomes taxable. Bah humbug!!

3) Christmas gifts. So the party is booked, the goose is getting fat, but what about gifts to staff at Christmas? HMRC allow employers to provide ‘Trivial Gifts’. The spirit of Christmas lives on! Talking of spirits, a trivial gift can be a turkey, bottle of spirits, a couple of bottles of wine or chocolates. Legislation is now in place that has set a limit of £50 on trivial benefits. There are no tax consequence on such gifts up to the value of £50.

4) Store Vouchers. Be careful with these, as they are effectively cash they must be included in the payroll and tax and National Insurance accounted for. However if vouchers are the preferred route, and the employer does not want the burden of completing P11Ds for all employees, consider a PAYE Settlement Agreement. This is an arrangement where putting certain small benefits or irregular benefits through the payroll or declareing them on P11Ds would be impractical.

5) So what is in it for the employer? Well aside from seeing the warm glow emanating from the employees, HMRC allow the deduction from profits of the business when calculating Income Tax or Corporation Tax.

6) Does the same apply to VAT? Yes the employer will get full input tax relief on the gifts provided.