COVID, it isn’t trivial, but gifts to staff at Christmas could be!
Usually at this time of year, many of our clients are gearing up for their annual Christmas parties, and plan parties with the annual events exemption in mind, so that it is tax free for employees. Under HMRC’s annual event exemption, for the event to be tax free, it must be:
- An annual event, i.e. occurring every year;
- Open to all employees, either at a particular site or all employees at all sites. Not all employees are required to attend, but must have the opportunity to attend, for the exemption to be met; and,
- The total annual cost of event(s) must be no more than £150 per head(including VAT). If you have more than one annual event during the year i.e. a summer event and a Christmas event, then the combined total of both events must cost less than £150 per head to qualify.
Events that do not meet the above criteria, are liable to tax on the employee, reported via Form P11D, and employer Class 1A NIC is also due, or can be included in a PAYE Settlement Agreement (PSA) for the employer to meet the tax liability arising.
HMRC have recently confirmed that this exemption is solely for annual events, and cannot be used to provide employees with an alternative benefit of the same value, because Christmas parties are cancelled this year due to Covid.
With this in mind, our clients have been looking at alternative ways to mark Christmas.
The solution is to use the trivial benefits exemption which allows employers to provide seasonal and life event gifts to employees without a tax/NIC charge arising. For employee Christmas gifts to be tax free as a trivial benefit:
- All employees must receive a Christmas gift on the same basis, and not different values for different seniority grades or length of service;
- The gift must not cost more than £50 to provide, this is including VAT and delivery charges;
- The gift can’t be cash or a cash voucher. Gift vouchers up to £50 are allowable provided they cannot be exchanged for cash;
- The gift must not be provided as a reward for work, a thank you or in recognition for the performance of employee’s duties;
- The gift must not be part of the employee’s contractual terms and conditions; and
- The gift must not part of a salary sacrifice arrangement.
So, as Christmas parties will be impossible this year, employers can say “Merry Christmas” to their employees by giving a non cash voucher, bottles of wine, a hamper or other goods, to all employees on the same basis up to the value of £50 per employee, (including VAT and any delivery charges).
If the gift provided does not meet the above criteria, the cost of the whole benefit, not just the excess amount over £50, is subject to tax which is reported via Form P11D and employer Class 1A NIC is also due. However, the employer can enter into a PAYE Settlement Agreement (PSA) with HMRC to meet the tax on behalf of the employees so that there is no P11D reporting. Non cash vouchers, included on P11D as a benefit are liable to Class 1 employee and employer NIC, which is deducted via the payroll. However, if agreed in a PSA in advance of being provided, the Class1 NIC, previously due via payroll, converts to employer only Class 1B NIC payable as part of the PSA settlement.
If any gift or benefit is provided in connection with work, or as a thank you, it will always be liable to tax on the employee and Class 1 or Class 1A NIC. Again, the employer can enter into a PAYE Settlement Agreement (PSA) with HMRC to meet the tax on behalf of the employees so that there is no P11D or payroll reporting.Read more about PSAs
If you would like further advice, or information on how to set up a PSA with HMRC, please contact our Employment Tax team.