Christmas – a time for giving?

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It’s almost time for the office Christmas do and so it is worth being well versed in the tax implications of the choices you make.

Now deep into the final quarter of 2021 and, we hope, with the worst of the pandemic behind us, many employers are making plans for Christmas and thinking about how to reward their employees for the hard work that has seen them through the recent difficulties.

Rewarding people in a tax efficient way minimises the cost to employers which, in turn, allows for more value for employees in the long run.

Here is a reminder of the relevant rules to consider when planning your Christmas event and/or gifts.

The annual Christmas function

The cost of putting on annual function for employees is usually exempt from income tax and NICs, so long as all employees (or all employees in a specific office or team location) are invited and the total cost per person that attends is less than £150 (inclusive of VAT).

There is also an option to put on more than one event for employees, provided that both events are annual in nature (for example, a summer barbeque and a Christmas party), open to all employees, and that the combined costs do not exceed £150 per head (including VAT) per tax year.

If the combined costs of all annual events in a tax year do exceed £150 (including VAT), the employer can choose to which event or events the exemption will apply. The £150 per tax year is not an allowance which can be offset against the total cost of all events per employee –  it is an exemption for the cost of an event itself (so the cost of a single event is either wholly taxable or not taxable on a per employee basis).

Gifts to employees

Employers can provide low value gifts to employees without incurring tax or NICs if the trivial benefit exemption applies.

The trivial benefit exemption is allowed where the value of the gift does not exceed £50 (including VAT), and is not cash or a voucher which can be exchanged for cash. Other stipulations are that it is not provided under the terms of a contract with the employee, nor as a reward or in recognition of the duties the employee performs.

So employers can give their staff hampers, bottles of wine, gift vouchers (so long as they can’t be redeemed for cash) or any other gift up to the value of £50 as a Christmas gesture – and the trivial benefit exemption should apply.

It is fine to provide gifts and also put on a separate Christmas party, providing the respective limits are adhered to, making them both exempt from tax.

But beware: employers should not give their employees a gift at the Christmas party itself. If this happens the value of the gift will be treated as part of the party cost per head and may push the total costs over the £150 per person limit. Then neither the gift nor the party will be exempt.

So, with a little forward planning, you can be generous and prudent at the same time.