Christmas brings the exciting prospect of gifts and parties. Many employers wish to ‘treat’ staff at this time of year, and if they can do it in a tax-efficient way, so much the better!
Let’s get the party started!
The Christmas ‘do’ is a popular event in many businesses. Staff entertaining does not result in a benefit-in-kind for employees, subject to a £150 per head limit. This exemption applies only to annual events – the perfect excuse to get planning for next year’s party!
Tax relief for your gift?
For business owners who are thinking of giving their employees a Christmas present, there is an income tax exemption for ‘trivial’ benefits provided by employers (ITEPA 2003, ss 323A-323C)
A: The benefit is not cash or a ‘cash voucher’.
B: The ‘benefit cost’ does not exceed £50.
C: The benefit is not part of ‘relevant salary sacrifice arrangements or other contractual obligations.
D: The benefit is not provided for particular employment services by the employee as part of their duties (or in anticipation of such services).
E: The ‘benefits cost’ of the benefit provided to the employee (or the amounts allocated to the employee where the benefit is provided to a family or household member who is not an employee) does not exceed the available exempt amount.
More good news!
There are no Class 1A National Insurance contributions (NICs) on benefits that are exempt from income tax. Furthermore, there is a matching exception from Class 1 NICs for non-cash vouchers.
Importantly, the £50 limit applies per benefit, not per tax year.
The £300 annual exemption
For the purposes of Condition E (which basically applies to closely-controlled companies), the individual has an annual exempt amount of £300.
Be careful: for directors, if the benefit-cost for the employee exceeds £50, the full amount is taxable, not just the excess over £50; and if the cost of an additional trivial benefit results in a total cost in excess of the annual cap of £300, none of the benefit that exceeds the cap is exempt.