Christmas gifts of up to £50 per employee are tax free

Employers should note that certain gifts to staff at Christmas are tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free.

This exemption applies to small gifts to staff at Christmas where the cost to the employer is no more than £50, this is in addition to gifts on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

Christmas party time

There continues to be no taxable benefit for employees provided that all staff are invited, and the cost to the employer does not exceed £150 a head, inclusive of VAT.

If you have already had an summer event, provided the combined cost of the two events is no more than £150 a head, there would be no taxable benefit in kind. If, however, the summer event cost £80 a head and the Christmas party £100 a head, only one event would qualify for the exemption and the employees would be taxed on the £80 benefit. Alternatively, the employer could deal with the tax and NIC on behalf of the employees by entering into a PAYE settlement agreement (PSA) with HMRC.

The conditions for benefits to be included in a PSA are that they must be:

(a) minor, as regards the amount of the sums paid or the type of benefit provided or made available;

(b) irregular, as regards the frequency in which, or the times at which, the sums are paid or the benefit is provided or made available;

(c) paid in circumstances where deduction of tax by reference to the tax tables is impracticable; or

(d) in the case of a benefit provided or made available, shared between employees so that apportionment of the benefit between the employees is impracticable.

Paying employees early before Christmas

Some employers need to pay their employees earlier than usual in December. This can be for several reasons, such as businesses closing during the festive period and needing to pay workers earlier than normal. As in earlier years HMRC have announced that they have relaxed the RTI (Real Time Information) reporting obligations.

If you do pay early over the Christmas period, you must report your normal or contractual payment date on your Full Payment Submission (FPS). For example: if you pay on 20 December but your normal payment date is 31 December, please report the payment date as 31 December. The FPS would need to be sent on or before 31 December.

Doing this will help to protect your employees’ eligibility for income-based benefits such as Universal Credit, as an early payment could affect current and future entitlements.

If you have any questions on how to get your business ready for Christmas please get in touch. We would be happy to help.

This article is for guidance only and professional advice should be obtained before acting on any information contained in them. No responsibility can be accepted for loss occasioned howsoever to any person as a result of action taken or refrained from as a result of reading.