Traditionally HMRC would only permit a tax free gift to employees at this time of year of a turkey or bottle of wine.
That has now all changed, and as long as the gift isn’t cash or a reward for service, employers can give their staff a gift of up to £50 without the need to account for payroll taxes or benefits in kind tax.
There is no limit on the number of gifts an employee can receive in a year, unless they are a director or are connected to a director, in which case the maximum per annum is six gifts.
If your Christmas treat exceeds £50 you can choose to pay the tax on behalf of your employees by making use of a PAYE settlement agreement.
Those party rules
Every year we are asked by our clients to remind them what the tax exemptions relating to staff parties are.
Maximum spend – £150 per person attending, not per employee.
The Spend includes everything i.e transport, food, drink, accommodation, entertainment and VAT etc.
The event must be open to all staff, or all staff at a particular location. Regional offices can organise their own party, but all employees in your business must be able to attend an event.
The event must be an annual event. You can have more than one annual event. It doesn’t have to be the same annual event – one year you could go to the races, another year you could have a summer barbeque.
If you have events at more than one location eg two Christmas parties for the two regional offices you average the total cost of both Christmas parties over the total number of attendees at both parties.
If you go over £150 on a single event the entire amount is taxable as a benefit in kind on the employees who attend (or you can pick up the tax bill through a PAYE Settlement Agreement).
If you have more than one annual event (eg summer and winter) you have to spread the £150 between the events. If the average cost per head for the summer event was £90 and the winter one cost £70 per head then you can choose which event is covered by the exemption. In this example the £70 is taxable on the employee
Awards and Prizes
Non cash ‘Employee of the year’ and other awards for good work are taxable benefits in kind.
Christmas Bonuses
A bonus or gift paid in cash counts as salary and should be payrolled.
