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Unlocking Tax Benefits This Christmas: A Guide for Employers
19 September 2024
Accounting & Compliance, People, Reducing Tax
With autumn just around the corner, summer holidays over, and children back to school, now is the time many of us start planning the remainder of the year.
Including Christmas plans!
Christmas parties are being booked, and staff and customer gifts may already be on your mind.
We explore how you can make the most of trivial benefits and other tax advantages during the festive season.
What are trivial benefits?
Trivial Benefit rules were introduced on 6 April 2016.
These rules allow employers to provide certain “trivial” benefits to their directors and employees tax-free.
The idea behind these rules is to simplify tax reporting for small, non-cash perks while ensuring employees enjoy them without the added burden of taxes.
However, there are some conditions to meet for these benefits to qualify as tax-free.
Conditions for Trivial Benefits Exemption:
- The benefit cannot be cash or a cash voucher (though gift vouchers for shops are acceptable as long as they can’t be exchanged for cash).
- The cost of the benefit, or the average cost per person, must not exceed £50.
- The benefit cannot be part of a salary sacrifice arrangement or any other contractual obligation.
- It cannot be given in recognition of specific services performed by the employee or in anticipation of such services.
Additionally, there’s an annual cap of £300 for directors or office holders of a close company and their family or household members.
A close company is one typically owned by five or fewer shareholders.
Example
If Mrs. Smith, a director, receives a £40 bottle of champagne for her birthday and a £45 turkey at Christmas, she would still have £215 left of her annual £300 limit.
If she then hosts a summer garden party for her employees, costing £30 per person on average, her remaining allowance would be £185.
Be Aware!
Exceeding £50
If any individual benefit exceeds £50, the entire benefit becomes taxable.
No Reward-Linked Gifts
The benefit must not be connected to performance or a reward for services.
For instance, if an employee works extra hours and is rewarded with a gift instead of cash, the benefit would be taxable.
The rules can be tricky.
However if you simply want to treat your team to pizza for lunch without it being part of a structured team-building or regular event, it would qualify as a trivial benefit.
Christmas Gifts for Employees and Customers
Gifts to Staff
The new trivial benefits rules cover small festive gifts like a turkey, chocolates, or a bottle of wine, as well as gift vouchers.
Just ensure that no gift exceeds £50 per employee, or the whole amount becomes taxable.
Gifts to Customers
Gifts to customers are tax-deductible if they display a clear advertisement for your business, aren’t food, alcohol, tobacco, or gift vouchers, and cost £50 or less per item.
Suitable examples include branded calendars or pens.
Even if the gift isn’t tax-deductible, it’s still better for the company to cover the cost than for a director to pay out of their taxed income.
Christmas Parties and Events
Expenditure on annual staff parties is tax-allowable for the business and not taxable for the employees, provided the cost is £150 or less per head (inclusive of VAT).
This covers the total cost of the event, including travel and accommodation.
VAT-registered businesses can reclaim VAT on the proportion of costs related to directors and employees.
Although these rules typically apply to Christmas parties, any annual staff event can qualify.
Just keep in mind that the £150 limit is an annual cap, not an allowance.
If you hold both a summer and a Christmas party, and the combined cost exceeds £150 per head, you must choose one event to be tax-free, with the other considered a taxable benefit.
Charitable Giving During the Festive Season
If you’re thinking of making charitable donations this Christmas, check out our blog on how to make tax-efficient charitable donations to maximize the impact of your giving.
Get in touch
If you have any questions in relation to the content of this blog please get in touch with our tax manager Christie Inns.
Our Services
To read more about what we do and who we work with please see our related pages below:
Blogs related to Tax Efficiencies
Take a look at our other blogs on the topic of VAT opportunities:
Maximise Tax Free Trivial Benefits
Tax Efficient Charitable Giving at Christmas
The content in this blog is correct as of 18th September 2024. See terms and conditions.
