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Employers can play Santa, but must consider “trivial benefits” tax implications

Ian McMonagleIan McMonagle, Tax Specialist - Russell & Russell Business Advisers

This year we plan to hold our party remotely and are going to order food and drink for the team. This can be quite tax efficient, as HMRC allows employers to spend £150 per annum, including the VAT, per attendee at an annual function without the employee incurring a tax bill on the benefit received. Please note that this is a benefit rather than an allowance and if the £150 is exceeded then the whole amount becomes taxable.

And whilst the party does not have to relate to the Christmas party this is normally held each year and so meets one of the stipulations set out by HMRC for an allowable expense: all employees must be invited and it must be at least an annual party (you can host more but the exemption is still £150 / year – not per party!).

Other potential benefits that may seem specific to Christmas, but can in fact be implemented throughout the year, are the “trivial benefits”.

So, what are the tax implications of trivial benefits?

Well, thanks to the Trivial Benefit Rules, there is a statutory exemption from income tax and National Insurance which will allow employers to express their appreciation of their workers without any unsavoury side effects.

The first thing to be aware of is that there is a £50 limit on the cost of any single gift, including VAT. If the cost exceeds that, then the full value of the gift is taxable under the usual Benefit-in-Kind rules.

The gift should not be in cash, or a voucher which can be exchanged for cash, although a voucher which can be exchanged for goods in a retail outlet should escape this limitation.

It should be clear that the gift is a not in any way related to work or performance; nor should it form any part of a contract or a salary sacrifice arrangement.

Employers also have to be aware that it is the cost of providing the benefit to each employee, and not the overall cost to the employer, which determines whether the benefit can be treated as a trivial benefit.

On occasion, an employer may wish to provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded, they should work out the average cost per person of providing the benefit.

Christmas aside, another thing to remember is that there is an annual limit of £300 on the aggregate value of trivial benefits that can be received by directors or office holders of a “close” company, i.e. a limited company that is run by five or fewer shareholders. This can be the case with many family enterprises.

So, in the absence of a festive party, employers can still bring some festive cheer, but they may find it politic to seek some professional advice to avoid the danger of turning into the Grinch.

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