Spread a little cheer this christmas with tax-free gifts for staff

'Tis the season for spreading cheer, and what better way for employers to do so than by gifting their hardworking staff with tax-free delights? In this blog, we unwrap the intricacies of the 'trivial benefit' exemption, and the all important staff christmas party.

From the cost considerations to the types of gifts that qualify, we'll delve into the details that make this a win-win for both employers and employees.

The Gift of Tax Exemption

Employers have the opportunity to give small tax-free gifts to employees and directors, given that the following conditions are met:

• The cost to the employer does not exceed £50.

• The gift is not in the form of cash or a cash voucher.

• It is not a reward for work or performance.

• There is no contractual entitlement.

• It is not part of a salary sacrifice arrangement.

This falls under the 'trivial benefit' exemption, and employers are not required to pay tax or National Insurance. However, it's important to keep a record of these gifts in case HMRC requests details.

Examples of such gifts could include a Christmas turkey, hamper, or a few bottles of wine. Some employers opt for non-cash vouchers from retailers like Marks and Spencer or John Lewis, allowing staff to choose their own gifts. If the cost exceeds £50, the entire amount becomes taxable.

Note that directors of 'close' companies cannot receive trivial benefits totaling more than £300 per tax year. A 'close' company, broadly defined, is a limited company run by five or fewer shareholders or any number of directors.

The Staff Christmas Party

Your employees are the lifeblood of your business, so what better way to show your appreciation for their hard work than by throwing a Christmas party? The best part; it can be tax-free!

During the last few years amidst the Covid-19 pandemic, many businesses organised "virtual" celebrations for their employees. HMRC acknowledged this as acceptable, and the tax exemption continued to apply.

So, let's unwrap the details and discover how you can throw a tax-exempt Christmas party.

The Magic Number: £150 Per Person

There's no taxable benefit for employees as long as all staff members are invited, and the cost does not surpass £150 per head, including VAT.

This £150 per head limit applies to a tax year. So, if there was an annual summer event as well, as long as the combined cost of both events doesn't exceed £150 per head, there's no taxable benefit in kind. However, if the summer event cost £80 per head and the Christmas party £100 per head, only one event would qualify for the exemption.

The Wrap-Up: A Merry and Tax-Free Celebration

In the UK, hosting a tax-exempt Christmas party is like finding a surprise gift under the tree – it's a festive perk that brings joy to both employers and employees. By adhering to the £150 per head limit, you and your employees can deck the halls without worrying about tax pitfalls.

Here's to a season filled with laughter, good company, and a little extra financial cheer for your company's bottom line!