Have a Very Tax Efficient Christmas!

With Christmas coming we thought it would be helpful to summarise all the key tax benefits you can use over the festive season to ensure you have a very tax efficient Christmas!

In a previous blog we talked about the Trivial Benefits rules which came in to play from 6 April 2016. These new rules allow employers to provide their directors and employees with certain “trivial” benefits in kind, tax-free.

The new rules are a simplification measure so that certain benefits in kind do not need to be reported to HMRC, as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.

Conditions for the exemption to apply:

1. The benefit is not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed provided they cannot be exchanged for cash).
2. The cost of the benefit, or the average cost per person of providing the benefit, does not exceed £50.
3. The benefit is not provided as part of a relevant salary sacrifice arrangements or any other contractual obligation.
4. The benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services

Furthermore there is a limit of £300 in total per tax year for directors or other office holders of a close company and members of their close family or household (a close company is one owned by 5 or fewer participators – in general participator means shareholder).

So if Mrs Smith, a director, receives from the company a £40 bottle of champagne on her birthday, then a £45 turkey at Christmas she will still have £215 left of her annual allowance. Let’s say she gives a summer garden party for all her employees which costs on average £30 this will then leave £185 remaining of her allowance.

Be careful!

Firstly if an individual benefit goes over £50 then the whole benefit is taxable.

Plus make sure it is not a reward or linked to the individual’s salary. Examples that would not qualify for the exemption are where an employee works a couple of hours extra and instead of paying them you reward them with a gift, or say you set the team a target which they hit and you take them all out for a meal as a reward. In both cases the reward fails and is strictly taxable on the employee(s).

This is a minefield but if as an employer you want to get pizzas in for your team, then provided this is not a team building event or a regular event then this will be fine.

Clearly there is a fine line between what is taxable and what isn’t, but provided you can keep within the rules detailed above and with an overall limit of £300 per director or office holder then you will be fine.

Christmas Time

Gifts to Staff 

The new trivial benefits rules cover the small seasonal gifts such as a turkey, a box of chocolates or a bottle of wine but on top they also cover all gift vouchers for staff. Just make sure you don’t spend more than £50 per staff member otherwise the whole lot is taxable!

Gifts to Customers 

These will only be tax deductible if they include a conspicuous advertisement for the business, are not food, alcohol, tobacco or gift vouchers and cost £50 or less per item. Examples of allowable items could include calendars or pens that advertise the business. Remember for companies, even if the gift is not tax deductible, provided it is for business purposes then please put it through the company books – it is far better for the company to pay for gifts with no tax relief than for a director to pay the cost out of his taxed income!

Christmas Parties 

Expenditure on annual parties for staff is tax allowable for the business and not taxable on the attendees provided the costs are £150 per head or less, which includes the VAT inclusive cost of the event plus travelling, accommodation etc.. For VAT registered businesses the VAT can be reclaimed to the extent that it relates to directors or employees (but not their partners). As directors are included this can be a nice opportunity for the tax man to contribute towards an enjoyable night out or weekend away for the owner and his or her partner! As a side note although this normally relates to parties in the Christmas season it does not have to, any annual staff event will be covered by the exemption.

Cautionary note. The £150 (inclusive of VAT) is an annual figure and is a limit not an  allowance. So if you organise a summer party and one at Christmas then provided the amount is less than £150 there are no tax issues. If the combined value is over £150 then one event (your choice) will be tax free but the other is a taxable benefit in the hands of the employee.

Charitable giving at Christmas

If you are interested in making charitable donations then check out our blog on making tax efficient charitable donations.

If you have any queries in respect of the above please contact Jan Friend.

The content in this blog is correct as at 06/11/2019. See terms and conditions.