08 Jul Do you understand the tax implications of staff gifts and staff parties and what classes as a trivial benefit?
Receiving a gift from your employer is a great feeling for employee and employer alike, but in the workplace the employer needs to be aware of the potential tax implications of gifts. Stoke Friday advocate Becky Nott, of Dean Statham Accountants in Newcastle-under-Lyme, looks at the different ways of rewarding staff and what it means for your business.
You can reward members of staff with smaller gifts and perks, known as ‘trivial benefits’, and you won’t need to report them to HMRC or pay tax and National Insurance as long as they meet the following criteria:
- It cost you £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for their work or performance
- It isn’t in the terms of their contract
The type of trivial benefits that are allowed include:
- Taking a group of employees out for a meal to celebrate a birthday
- Buying each employee a Christmas present and/or birthday present
- Flowers on the birth of a new baby or an engagement
- Wedding gift for an employee
Staff parties and events may also be exempt from tax and national insurance if they meet the following criteria:
- Open to all your employees
- It’s an annual event, such as a Christmas party or summer BBQ
- Cost £150 or less per person (inclusive of VAT)
It is important to remember that the figure of £150 is not an allowance, it is an exemption. This means that any event costing more than £150 per employee is chargeable in full, not just the excess over £150.
Directors of close companies can’t receive trivial benefits worth more than £300 in a tax year. A close company is a limited company that’s run by 5 or fewer shareholders.
Where benefits are provided to members of a director’s family, the value of those benefits count towards the director’s cap of £300 if that family member is not also an employee or director of the company.
The £300 yearly limit is separate to the exemption for annual events such as Christmas parties or summer BBQs.
Some examples of benefits
Example A – Benefits allowed as trivial
An employer gifts each of their employees a bottle of champagne costing £50 as a Christmas present. However, as some of their staff don’t drink they give them a £50 supermarket gift voucher, which can be used to buy themselves an alternative. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.
Example B – Benefits allowed as trivial
On a hot day an employer unexpectedly buys everyone in the office an ice-cream. The ice-cream can be classified as a trivial benefit as the employees don’t have to do anything in order to receive the treat.
Example C – Benefits not allowed
An employer gives each member of their 25-strong workforce a bottle of wine as a Christmas present. The total bill comes to £1,000. This is for 20 bottles of wine at £15 per bottle given to each of their employees, and five bottles of wine for the directors that cost £140 per bottle. The £15 bottles of wine don’t exceed the trivial benefit financial limit, but the £140 bottles of wine for directors do.
Example D – Benefits not allowed
An employer promises to provide breakfast to those employees who agree to come in early to help with a monthly stock-take. This amounts to a reward for performing duties connected with the employment contract, so condition 4 is broken and the breakfast is not a trivial benefit.
Example E – Staff parties and events allowed
A company holds an annual Christmas party for all its staff. The average cost per employee is £100.
It is the only event held in the year and therefore is exempt.
Example F – Staff parties and events allowed
A company holds one annual function in a tax year and does so virtually on Zoom. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 limit and so the exemption applies.
Example G – Staff parties and events not allowed
In addition to the main Christmas party costing £100 per head, the directors hold an annual party at Christmas for the directors only which costs £75 per head. This function is not open to staff other than directors. Consequently, it is not covered by the exemption because it is not available to staff generally. The full benefit is chargeable on the directors attending.
Example H – Staff parties and events not allowed
A company holds two annual dinner dances open to all its employees in the tax year. The cost per head of the first was £100 and the cost per head of the second was £80. The total cost per head for both functions was £180 so they cannot both qualify for exemption. Since the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own but it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged and those arising from the second function will be charged.