Like to save some money on your Christmas gifts for your employees this year? Wouldn’t mind cutting the cost of your festive entertainment or meal?
With Christmas fast approaching, it’s worth being aware of HMRC’s recent changes to the benefits and expenses rules. As of the 6th April 2016 trivial benefits became statutory and also became much clearer for employees.
Such benefits as seasonal and occasion gifts, along with tea and coffee for employees have always been exempt from tax. However, under the new statutory exemption for trivial benefits, employers are given greater opportunity to profit from the allowed benefits.
What is now allowed as a trivial benefit? And what are the conditions?
If you give a benefit to your employee it will be exempt from tax as employment income, providing it meets the following:
- the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
- the benefit is not cash or a cash voucher
- the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
- the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
However, if the above conditions are not met, the benefit provided will be taxed in the normal way. (See HMRC’s draft guidance for more information)
So, how can you benefit over the festive season?
The recent changes mean that giving vouchers to employees is now allowed. So great news if you’d like to give the gift of a non-cash voucher, such as a store card for Boots, Next or iTunes. Just make sure that the gift voucher is not over £50 and your Christmas gift will be classed as a trivial benefit and therefore not eligible for tax; you won’t have to put it on the P11D or pay any tax or national insurance as employer or employee.
What’s not allowed?
If you are a Director of a company and before you get too carried away, bear in mind HMRC’s guidance on the exemption: ‘where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year’
This is the example they give:
Company O gives bottles of wine each costing £30 to a director, to his wife who is a former director, and to their daughter on their birthdays. The daughter is not an employee or office holder of Company O, so the cost of her bottle of wine is apportioned between her father (a current director) and her mother (a former director). In respect of the daughter’s gift, £15 (£30/2) is allocated against the father’s annual exempt amount. The balance is allocated against the mother’s annual exempt amount under the employer-financed retirement benefits (EFRBS) regulations (The Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) (Amendment) Regulations 2016).
However, there is nothing stopping you buying twelve £50 gift cards and giving one to yourself and a spouse, if they are also a Director of your company, over the course of the year. This will allow you to save a potential £335 between you.
So, all in all the new statutory benefit for trivial benefits is great news for both employers and employees. As well as allowing you to save some money over Christmas time, the new trivial benefits exemption means you can be a brilliant employer all year round and enjoy tax-free treats yourself too— without your generous gestures coming under scrutiny as potential benefits in kind.