17 December 2021

Christmas Hampers, Parties and Gifts to Employees

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Corporate Tax Planning,

Personal Tax Planning,

Tax Reliefs (including R&D)

Christmas Hampers, Parties and Gifts to Employees

It’s the time of year where many employers (if they can) like to reward their staff for their support and dedication during the year. It’s been a tough year for many businesses and its always a nice gesture to reward staff with a thank you at Christmas for all their hard work throughout the year. Especially the last 2 years when employees have been asked to adapt to all kinds of situations and be flexible in their approach to work in all kinds of ways.

Tax free gifts to employees

Whilst everyone enjoys receiving presents at Christmas, employees are unlikely to be thrilled about gifts from their employer that come with a tax charge. Fortuitously, a statutory exemption from income tax and national insurance for employees and employers exists thanks to the trivial benefit rules. The current form of these rules took effect from 6 April 2016, and the key conditions are:

  • The cost of the gift, including VAT, does not exceed £50 per employee.
  • The gift is not cash or a cash voucher – a voucher which can be exchanged for cash. A non-cash, gift voucher which can be spent in a retail store should be acceptable.
  • The gift is not provided under a salary sacrifice or other arrangement.
  • The gift is not provided in recognition of particular past or future services performed by the employer - a gift on the occasion of Christmas should meet this requirement.
Christmas Hampers to Employees

We’ve detailed below a guide of how to do give a thank you gift or hamper so that the employer and the employee can benefit from this: If you wish to gift a hamper or other gifts, such as wine, chocolates or champagne, which could usually be considered a taxable benefit to the employee, but if you keep the cost below £50 this will fall within the trivial benefits exemption.

If you exceed this amount of £50, unless as the employer you have entered into a PAYE settlement agreement with HMRC, the cost would need to be shown on the P11D and the employee will have to pay the tax and the employer would have to pay the Class 1A (or 1B) National Insurance Liability.

This trivial benefit exemption means that it could be more beneficial to you to perhaps give more than one gift costing less than £50 each, instead of one gift that costs more than £50. For example, if you were to gift a turkey costing £45 and a bottle of wine costing £35, both gifts would fall within the trivial benefits exemptions (subject to the annual cap for close companies). But if you were to gift a hamper costing £80, the benefit would be taxable in full, even though it costs the same as the two individual gifts.

Christmas Party

Maybe not this year but next year we all hope we can get back to the good old works Christmas party! What happens if you host a party and give an inclusive gift? A further issue may arise if the hampers or gifts are supplied in the context of the annual Christmas party. There is also an exemption that applies to an annual party or similar annual function and, where the cost is within the limit (£150 per head), where no liability arises ‘in respect of its provision’.

The question is therefore whether the giving of the hampers or gifts can be accurately described as part of the cost of providing the party. Subject to the issue of very minor benefits mentioned below, the HMRC manuals offer no guidance on the point and, in the absence of any relevant case law, the best approach is probably to take a reasonable line.

For example, if, when things are back to the ‘new normal’ the company holds the office party at £70 per head and it is the only annual event, this means that there is a possible unused relief of up to £80 per head available.

Examples

Consider the following scenario’s and how they would be affected by the exemption for both the annual party as well as the trivial benefit:

1. At the dinner table, crackers are provided by Employer A for each person attending. The crackers are fairly basic, costing £2 each and containing a hat, a joke, a balloon and a key ring or puzzle. The £2 is not included in the £70 per head paid to the organisers of the function.

2. Employer B spends £60 per head on providing a Christmas hampers for each employee, the hampers being given to those attending as they leave the annual Christmas dinner party. Those staff who do not attend the dinner are given their hampers the next day in the office. Again, the employer has arranged for these privately and the cost is not included in the £70 per head.

It is suggested that it is reasonable to include the cost of the crackers as part of the provision of the party, even though they are paid for separately. The hampers, on the other hand, may be perceived by the employees as an additional gift.

If, for example, they send a thank you note to the employer, they are likely to thank for both the party and the hamper. In view of the amounts involved, it is suggested that HMRC are more likely to pursue a tax charge on the cost of the hampers.

As the cost is more than £50, the trivial benefits exemption would not apply. Another factor to consider is the treatment of employees who do not attend the party. If they are still entitled to the hamper, this is a further reason for suggesting that the cost of the hampers is not in reality a part of the cost of providing the party.
Don’t go over the £150 and lose tax relief

The treatment could work either way. If the party costs £120 per head and the hampers cost £60 each, then it will be to the employer’s advantage if the hampers are not treated as part of the cost of the function; to include them would cause all tax relief to be lost as the £150 limit would be breached.

However, were the employer to provide cheaper hampers costing £50 or less, it would be possible to provide both the party and the hamper tax-free by utilising the trivial benefits exemption for the hampers. Specific advice should be taken in if in doubt in relation to seasonal gifts. A cash bonus paid at Christmas time, or at any other time of the year, is taxable and should be subject to PAYE and National Insurance in the usual way. Vouchers, too, must follow the normal rules.

Haines Watts, PAYE, P11D and Tax

We work with businesses all year round providing tax planning and compliance along with specialist services for R & D Tax Relief, VAT, Capital Gains Tax with regard to individuals, property and businesses. If you have an queries or concerns regarding the above or would like to find out the best way to show appreciation to your staff and any tax implications then please give us a call.

As well as a knowledgeable and experienced Tax team we can offer outsourced services such as Payroll and Bookkeeping. Give us a call now on the number below or drop us an email.

 

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