Christmas is soon approaching and both employers and employees are getting into the festive spirit with the exchanging of gifts and throwing of parties, but these activities could leave businesses with a higher tax bill, says Blick Rothenberg
Around this time of year gifts to staff, such as bottles of wine, gift vouchers and chocolate, are very common to thank staff for their hard work throughout the year, however these gifts can be seen as a taxable benefit.
Yadvinder Rihal, Employment Taxes Manager at Blick Rothenberg, said: ‘Each of these is a taxable benefit, regardless of cost, and would need to be reported on forms P11D as a benefit.
‘However, HMRC do not always like to be seen as Scrooge and the introduction of the new trivial benefits exemption can apply. This includes items such as a bottle of wine, a box of chocolates, flowers or a seasonal gift provided the cost is less than £50.
‘Where the cost of the gift is not trivial then it will need to be reported on P11D as a benefit. Should the employer decide that this is not practicable or appropriate given that this is a gesture of good will, they may pay the tax and NIC due in their PSA. In this case employers would be paying the tax on a grossed up basis i.e. paying tax on the tax.’
A cash gift or a bonus given to staff is treated as normal pay and therefore is subject to PAYE tax and NIC deductions.
External clients may also send gifts or vice versa. Details of the expenses and benefits provided to employees by third parties have to be provided to HMRC, where the employer has arranged or facilitated their provision.
Rihal adds: ‘Alternatively, where an employer makes a reciprocal agreement with a supplier to provide goods to the other's employees, each employer would be regarded as having arranged the provision for its own employees.
‘Where there is no arrangement, the third party must give the same details to the employees as it would have to give if they were its own employees, but it does not have to give the information to HMRC unless specifically requested. The deadline for providing details is the same as for the submission of forms P11D.’
The tax allowance for annual functions, such as Christmas parties, is £150 per head each year. If the cost per head goes over the limit then tax is due on the total cost.
Rihal said: said: ‘Some good news is that the employer can plan and choose which event triggers the excess charge, so they pick the lower costing event to treat as fully taxable.
‘This allowance should go up with inflation, but HMRC has not increased it since 2003. With rising venue costs and employee expectations, pressure is on employers to be able to provide a great party at a reasonable cost.’
