Tax at Christmas, what you need to know
At Christmas, we all know it’s a time for giving, though it’s important to know where HM Revenue & Customs (HMRC) stands on gifts for staff. When you’re planning Christmas at work, the first temptation may be to get everything sorted as quickly as possible – especially if you’re busy with other things! However, there may be some tax implications that you need to keep in mind.
If you spend over a certain amount of money on gifts, you may end up needing to pay National Insurance and tax. You could also face penalties if you do not declare anything as taxable. Is a work Christmas party tax deductible, for example? What about Christmas bonuses? Read on to find out the answer, and how to choose gifts while complying with the law.
Are Christmas gifts for employees tax deductible?
Spreading the Christmas cheer in the office by giving staff a present is a wonderful thing to do, but it’s important to know how to correctly navigate this so you comply with the law. Legally, employers may make small tax-free gifts to employees and directors if all of the following conditions apply:
- The cost to the employer is £50 or less
- It is not cash or a cash voucher
- It is not a reward for their work or performance
- There is no contractual entitlement
- It is not provided as part of a salary sacrifice arrangement
This is known as the ‘trivial benefit’ exemption. Employers do not need to pay tax or National Insurance or let HMRC know if these conditions apply. However, it’s recommended that they keep documentation of the gifts should HMRC ever request any details.
The gifts for your staff could, for example, be a Christmas Turkey, a hamper or a few bottles of wine. Something along these lines is the ideal choice if you’re looking to keep it simple.
When Christmas at work arrives, many employers provide vouchers from retailers, such as Marks & Spencer, Amazon or John Lewis, so their staff can choose their own gifts. This is another good idea and these types of gifts are regarded as non-cash vouchers and would fit within the exemption.
If the cost to the employer exceeds £50, then the whole amount is taxable.
A note from Kirkwood Wilson: directors of ‘close’ companies can’t receive trivial benefits worth more than £300 in total per tax year. A ‘close’ company is a limited company that, broadly, is run by five or fewer shareholders, or any number of directors.
Can a Christmas bonus be tax-free?
If you’re thinking of giving your staff a financial pick-me-up in the festive period, and you’re wondering if it’s tax-free, you’ll be disappointed. The idea of a tax-free Christmas bonus does not exist because any cash you give to employees still counts as standard earnings. As a result, you’ll need to add the value to your employees’ other earnings and take off any tax and National Insurance payments through their payroll.
Is a work Christmas party tax deductible?
During the Covid-19 pandemic, many companies hosted a ‘virtual’ Christmas party for staff because they were unable to get together in person. HMRC agreed that these types of parties would be acceptable and that the standard exemption of £150 per employee would continue to apply.
At present, there is no taxable benefit for employees, provided that all staff are invited and the cost does not exceed £150-a-head, inclusive of VAT.
The £150-a-head limit applies to a tax year as a whole. So, if you’ve also had a summer event, and provided the combined cost of the two events is no more than £150-a-head, there would be no taxable benefit.
However, if the summer event costs £80 per head and the Christmas party is £100, for example, only one event would qualify for the exemption.
Christmas at work with Kirkwood Wilson
Now that you know how to navigate potential issues with HMRC around Christmas gifts, bonuses and parties, you can enjoy the festive season without any worries. If you’re still having trouble with taxes, consider using the various tax services that Kirkwood Wilson can help you keep on top of.
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