Under the exemption, a gift is considered trivial, and is therefore exempt from Income tax and National Insurance consequences for both employer and employee, where it meets the following conditions:
- The gift is not cash or a cash voucher;
- The cost of the benefit does not exceed £50 for each employee;
- The benefit is not provided under a salary sacrifice or other arrangement;
- The benefit is not provided in recognition of particular past or future services performed by the employer – so a gift on the occasion of Christmas would meet this requirement.
For some companies, particularly family owned companies, which meet the definition of close – i.e. the company is owned and controlled by five or fewer participators – there is an additional annual cap on the aggregate value of trivial benefits paid to directors or officeholders or employees related to them. This cap is £300. Apart from this situation, there is no limit on the number of trivial gifts that can be made to an individual employee during the year, although HMRC will not accept an employer trying to divide a larger gift into smaller gifts that fit under the limit.
If the cost of a gift, including VAT, exceeds the £50, then the full value of the gift is taxable under the usual benefits rules. The relevant rules will depend on the nature of the gift. Examples of gifts that will qualify under the trivial benefit rules– which can include the gift of a turkey provided that the average cost is under £50 – can be found in HMRC’s guidance. The guidance also includes details of how to calculate the average cost. HMRC are expecting people to apply common sense and not to attempt to bring a number of more expensive gifts under the limit by averaging with similar, cheaper gifts – so it would not be reasonable to average gifts of a whole turkey costing over £100 to a few members of staff with a gift of a £5 leg to everyone else!
The trivial benefit rule could also be used to cover a Christmas meal or party costing under £50 a head if the usual, annual staff parties and annual functions cost limit either doesn’t apply, or the limit of £150/head has been used on another event in the year.
Christmas presents paid in cash to staff will be taxable as earnings in the normal way (subject to tax and national insurance). The same tax treatment also applies to vouchers exchangeable for cash, with the employee taxed on the full value of the voucher.
Vouchers exchangeable for goods and services only (non-cash vouchers) are also taxable and must be reported on the employee’s form P11D. Class 1 national insurance will normally need to be deducted through the payroll.
As an additional staff benefit which costs nothing and attracts no tax, why not consider any of the following :
- allow an extra half a day’s holiday for Christmas Shopping.
- Arrange a team- building day with a local charity to help at a Christmas event in your area.
There are many ways to reward staff at this festive time but it is important to consider the tax implications of making such gifts.
The advice in this column is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.