If lock-down is relaxed over the Christmas holiday period, and we can celebrate with work colleagues, family and close friends, even if there are any residual restrictions due to the coronavirus pandemic, wouldn’t it be nice to know that some of the festive cheer was funded tax-free.
Please note these concessions are only available to employees (including company directors). They do not apply to the self-employed (sole traders or partners) although they would apply to their employees.
What tax-benefits are available
There are two ways that your employer can fund gifts and benefits this Christmas without creating tax issues for either party. They are funding your annual Christmas party or by making gifts subject to HMRC’s “Trivial Benefit” rules.
The Annual Christmas Party
A major constraint on organising a Christmas party this year is the issue of social distancing. We will have to wait and see how much flexibility we have when revised guidelines following the end of the second lock-down are clearly understood.
How much can employers contribute to an annual bash tax-free?
As long as all employees are invited and it fulfils the definition of an “annual party” rather than a one-off celebration, then employers should be able to provide up to £150 per head, tax-free. Complications arise if more than one sponsored event is funded each year, but essentially, as long as the average cost per head does not exceed £150 (including VAT), no tax issues should arise.
HMRC have also confirmed that, subject to the usual rules, the costs of providing a virtual party for staff will be eligible for the £150 per head exemption.
Three ideas for coping with social distancing this year
• Book separate tables in the same venue – ask your local restaurant if you could book separate tables on the same night and still comply with the regulations. If you have enough numbers, perhaps you could book-out the venue?
• If tighter regulations still apply – if we are still home-bound, perhaps employers could organise a takeaway delivery to staff on the same evening and the more adventurous could have a work’s Zoom quiz or Karaoke session…
• Virtual party organisers – if the prospect of setting up a virtual Christmas party is daunting you could approach one of the enterprising virtual party organiser businesses adapting to COVID challenges by party planning online. Google – virtual Christmas Party planning.
And just to ensure that you do achieve a tax-free result, do check with us to make sure your arrangements comply.
The so-called “Trivial Benefits” rules dictate the scale of gifts that can be made to employees tax-free. In most cases, gifts will qualify if the following conditions are observed:
• The average cost per head (for groups) or individual cost of a gift cannot exceed £50.
• The gift cannot be cash or a voucher convertible into cash.
• The gift cannot be a contractual obligation including a part of a salary sacrifice arrangement.
• The gift cannot be a reward or recognition for a particular service provided as part of employment duties.
Additionally, directors and their family members are restricted to annual limits of £300 for all Trivial Benefits provided in a tax year. This limit does not apply to other employees.
These exempt gifts can also be made to employees and members of their family or household.
For employers that are able to fund these gifts this is an excellent way to spread a little good cheer this Christmas.