HMRC spreads the Christmas cheer - allowable benefits at Christmas
It is the time of the year when workplaces start to think about the all-important Christmas party/bonus or workplace gifts. If you are an employer, you probably want to reward your staff for their hard work and ensure that they come back in the New Year raring to go. However, you may not have considered the tax implications of what might seem like a simple Christmas gesture. It really is a good idea to familiarise yourself with HMRC rules before you get out the chequebook.
Cash is not good
One of the most common mistakes that employers make at Christmas is to offer their staff a cash bonus and not declare it. As nice as this is, it is illegal and could land you in hot water (with a hefty fine and a tax bill). Any cash gift or vouchers need to be declared and you will need to pay tax and NIC on these gifts as they are regarded as a bonus.
This applies even to the smallest of cash gifts as it could be construed as tax avoidance and cash in hand work.
HMRC allow certain benefits as long as they are regarded as trivial. As long as you follow these rules, you won’t need to pay tax on gifts or benefits you offer your staff:
● The gift cost you less than £50 in total (such as a turkey, a bottle of wine or a Christmas pudding)
● The gift is not cash or a voucher
● It is not regarded as a reward for work or performance (this is a bonus)
● It is not mentioned in their contract
So, what about throwing a party for your staff? Luckily HMRC are not completely Bah Humbug - they do allow a fairly decent budget of £150 per staff member to be spent on a Christmas party or other event as tax free. However this is £150 per staff member across the entire year - so if it is used up for the Summer BBQ, you might find yourself needing to pay tax if you also decide to offer a Christmas event.
These events must be exclusively for all staff members and not restricted in any way to Directors or certain staff members. If there are restrictions, they are regarded as business entertaining and are not tax deductible..
So, even though an extra little bit in the pay packet in December will be welcomed by your staff - do think through the additional tax burden on you. You might prefer to consider a ‘trivial gift’ (in the tax sense) and a party instead - that way everyone gets their money’s worth and HMRC don’t need to get involved at all.