Christmas is coming and it’s likely to have been a tough year for many people, their business if they operate one and their teams. As normality returns, there are still some ongoing challenges such as social distancing, masks, lateral flow tests and more. So, you may be wondering about how you can reward your employees with Christmas gifts as a thank-you for their hard work throughout the year.
This blog post will tell you lots about Christmas gifts for employees and what you need to know. If you have any further queries about your festive finances or Christmas treats for your team, just drop us a line. We will happily give you more personalised or in-depth advice.
If you were to give your employees a Christmas present in the form of cash, then this would be taxable as earnings in the normal way. This means it would be subject to both tax and national insurance. This also applies to vouchers that can be exchanged for cash. The employee will be taxed on the full value of the voucher.
Non-cash vouchers that are exchangeable for goods and services only will also be taxable. They must be reported on the employees P11D form. Class 1 National Insurance will normally be needed to be deducted through payroll. It is essential your payroll manager or accountant is aware of this so it can be reported correctly to HMRC.
If you choose to give your employees a seasonal present such as a bottle of bubbly, a box of chocolates or similar, then this needs to be below the value of £50 per employee. It is then classed as ‘trivial’, and the employee will not be taxed. If the Christmas gift was to exceed this amount, then it will be taxable and HMRC will need to know.
If your employees do a great job, they may be given a gift from a third party. As long as the value of the Christmas gift does not exceed £250 in cost, then this is not taxable for the employee. If it is over this amount, then it is taxable and HMRC should be aware.
Staff entertaining can be an allowable business cost where this solely relates to your employee’s. The expenditure must be wholly and exclusively for the purposes of your business and does not necessarily need reporting to HMRC if the event is open to all your employees, be annual, such as a Christmas party (or Summer BBQ for example) and cost £150 or less per person. The allowance can be split across a number of events, as long as the combined costs does not exceed £150 per head.
A close company is one that is run by 5 or less shareholders. As a director you can receive trivial benefits up to a value of £300 in a tax year without the necessity to report these to HMRC or pay additional income tax or National Insurance on the benefit.
Remember receipts should be kept for all trivial benefits and the annual allowance can cover benefits provided to a family member or a member of your household and still be exempt.
If the exempt limits are exceeded, even by a small amount, the total value of the benefit – and not just the excess – will have to be taxed through the payroll or reported on a form P11D.
Are you still unsure of the best way to thank your employees for their hard work this Christmas? Give our team a call. We can talk through some options with you that offer the best outcome for you and your employees.