With the Christmas period approaching you may be considering you might like to reward your employees. So what are the tax rules when it comes to Christmas gifts or extending festive bonuses to your team?
This time of year can be a good opportunity to recognise hard work and commitment from your team. But ahead of sharing any gifts or bonuses it’s important to bear in mind what the tax implications any generosity might bring. This is a useful consideration as there could be tax consequences for both you as an employer and your employees too.
Here are some of the ways in which you can tax-efficiently share Christmas gifts with your team:
- Trivial Benefits Allowance – this tax-free allowance allows up to £50 to be gifted to employees without tax or National Insurance contributions. It can’t be a cash payment, so gifts such as wine or small hampers are a good option.
- Non-Cash Gifts – as well as physical gifts, non-cash benefits such as vouchers can be gifted to employees. Again these cannot exceed £50 in value.
- Christmas Party Exemption – up to £150 can be spent on each employee for an annual Christmas party or event. The payment is exempt from tax and national insurance. This can be a good social and team building activity as well as a way to celebrate the festive season together. If preferred you could split the exemption across two or more events in the year, to cater for a Christmas and a summer party for example.
What if Christmas gifts need to be declared?
Do remember that any Christmas gift to your team which exceeds £50 needs to be declared to HMRC. At this point the whole value of the gift needs to be declared and the full value will be taxable. The right practice for this it to include the gift on the P11D.
What happens if an employee receives a Christmas gift from a customer?
Another consideration is when employees receive a Christmas gift from a third party. For example they might be sent a bottle of wine or a food hamper as a thank you from a customer or supplier. As long as the value of the gift doesn’t exceed £250 there will be no tax for the employee to pay.
To discuss any aspect of business tax please get in touch.