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Tax free gifts and the trivial benefits exemption

Dec 16, 2019

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By Lyndsey Hall

Tax free gifts trivial benefits exemption

 

Thinking about treating your employees to a Christmas party or a festive hamper this holiday season? Save yourself some tax by sticking to the guidelines set by HMRC for tax free gifts and trivial benefits. 

In 2017, HMRC introduced a number of significant changes to the benefits and expenses rules, including a new statutory exemption for trivial benefits. As well as allowing non-cash vouchers and making the staff Christmas party tax-free, HMRC also introduced a £50 cap for trivial gifts, such as for Christmas or personal events like weddings and new babies.

 

Staff parties 

If you like to thank your employees by throwing an all-expenses-paid Christmas party at the end of each year, your event could be exempt from tax. As long as the cost of the event doesn’t exceed £150 per person, you won’t have to pay any tax on it, but if it comes to £151 a head or more then the full amount will be chargeable.

The event also has to happen annually, so Christmas parties and summer BBQs are fine, but your business’s 10th anniversary isn’t exempt. Speaking of which, you can hold more than one event during the year, as long as the combined costs don’t exceed £150 per person. So why not treat your hard-working team to both a Christmas do and a summer party!

The events:

  • Must be primarily for entertaining staff
  • Must be open to all staff who work for the company
  • Should not be just for directors (unless all staff are directors)

 

Just remember, if you do hold any events that don’t meet these conditions, you’ll need to report them on each employee’s P11D form and pay class 1A national insurance contributions on the full cost of the event. Make sure you keep detailed records, even if your events are exempt, just in case HMRC needs to check what you’ve spent.

If your company is VAT-registered, you’ll also be able to reclaim the VAT you paid on the event, as it comes under the category of staff welfare, which has a clear business purpose. However you won’t be able to reclaim VAT spent on entertaining clients or other non-employees.

The £150 must include VAT, even if the employer reclaims this, and all costs, such as travel and accommodation, must be included. The total spent should be divided between the number who attended, not the total number of the company’s employees.

 

Long-service awards  

The rules for long-service awards are quite strict, you won’t have to pay any tax as long as the employee has been with you for at least 20 years and the gift has a value not exceeding £50 for each year of service.

 

Trivial benefits

Gifts such as Christmas gifts or wedding presents, or even gifts for the arrival of a new baby all come under trivial benefits, and are therefore tac free up to a value of £50 per gift.

Some employers even use the exemption to provide annual flu vaccinations for staff, or other similar arrangements. As long as the benefit is not a voucher exchangeable for cash or a reward for doing their job then it’s tax free.

Cash benefits, including cash vouchers, are always taxable irrespective of the value. Owner managers are also subject to an annual cap of £300 on gifts to themselves or employees who are members of their family.

 

Do you like to thank your employees with an annual party or small gifts throughout the year? Follow these guidelines to save yourself some money and keep it tax exempt.

 

Happy holidays! 

 

 

Related articles:

A staff summer party can be a tax-free benefit 

How to motivate employees this Christmas

Why the UK is spending less this Christmas

 


 

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