Andy Froggatt looks at what little gifts the taxman might have for you this festive season.

Christmas cheer

Hurrah, Christmas is coming! The goose is getting fat. HMRC will be feeling full of seasonal cheer so will give us lots of freebies and we can all make merry, right? Erm…. Well, I note below some of the tax-free benefits that are usually thought about at Christmas but do actually exist all year. It’s not a very long list and the limits have been in place for years – another stealth tax that we have been hearing about recently from commentators on the Chancellor’s budget.

Staff ‘do’

Business owners who are minded to celebrate the forthcoming Christmas break with their staff are reminded there is a tax-free allowance for the provision of an annual party or other events for the benefit of staff and their partners. The present limit to tax relief is £150 per head. If this amount is exceeded the full cost of the benefit is taxable, not the excess over £150.

Christmas gifts for staff

Another way to benefit staff tax-free for Christmas is to consider making small gifts.

You don’t have to pay tax on a benefit (gift) to your employee if all the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

Gifts that fall into this category are known as a ‘trivial benefit’ and, whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.

Any gifts that do not meet this definition will likely be taxable.

Gifts to directors are treated in a similar fashion with one overriding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of ‘close’ companies. A close company is a limited company with five or fewer shareholders.

Watch out for VAT charges

If you recover the input tax charged when you buy gifts for employees and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.

The costs of exceeding the £150 and £50 thresholds are really ‘Scrooge-like’ in spirit but are fixed, so be careful!

Another consideration: retail vouchers

Retail vouchers are considered ‘non-cash vouchers’ as they can be exchanged for goods and services but not cash. There is no tax deduction on retail vouchers via your payroll, instead they are taxed as a benefit in kind reported on form P11D.  There is a NIC liability for both the employee and employer.  The value of the voucher – cost to the employer – must be recorded on the employee’s payslip and NIC paid on that value. If the face value of the voucher is £50 or less HMRC considers this a trivial benefit – see ‘gifts’ above.

No gift from the taxman at all for cash bonus!

This is where you provide an employee with a cash sum as a Christmas Bonus. It does not matter if you hand the employee cash in an envelope or pay it via your payroll. PAYE and NIC must be deducted from these payments and shown additionally to the employee’s normal earnings.

Our own Christmas offers are more generous than HMRC – please email me on andyfroggatt@roystonparkin.co.uk for our free e-book ‘57 Ways To Grow Your Business’ including the chapter on The Four Phases Of Owning an Elephant!  Or if you are thinking of starting a business our New Business Kit for 2022/23 will give the background information and compares Self-Employment, Partnerships and Companies.

Perhaps a meeting would help to discuss your business affairs and get plans together for 2023 and beyond? Please call to arrange and we would be pleased to welcome you to our offices for discussions on planning for growth (or just survival!) in the coming months.

All at Royston Parkin send you our best wishes for the coming festive season and a peaceful and healthy New Year.