Christmas present to your employees or to the Inland Revenue?

Christmas is a time for celebration and for businesses that means rewarding one of their main assets, their employees.
Businesses that, despite the recession, are really entering the festive spirit should remember that gifts for their employees will be taxable. Christmas bonuses or store vouchers which can be redeemed for cash will be subject to PAYE and National Insurance paid through the PAYE system.

If the business prefer to give staff a high street gift voucher, the business can pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement (PSA) with their tax office.

However, there are a number of ways that employers can reward their staff without paying the taxman.

‘Trivial’ Items

Gifts deemed as trivial are exempt from tax. HMRC have extended the definition of what a ‘trivial’ gift is.

A trivial gift includes such items as a turkey, a bottle of wine or a box of chocolates. However, a case of wine or a hamper will not be deemed trivial and would be deemed as a taxable benefit. As will a turkey purchased in conjunction with a bottle of wine,

If in any doubt whether the gift should be deemed trivial or not, you should seek advise from your accountant or HMRC.

Promotional Gifts

Business normally purchase promotional gifts for their customers and their suppliers. Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.

If the gift costs more than £50, HMRC will disallow the whole amount, not just the amount over £50!

Gifts of food, drink, tobacco or vouchers are specifically excluded.

Staff Parties

Staff parties are potentially tax-free. HMRC's festive gift is limited though, as companies are allowed an annual tax-free amount of up to £150 per member of staff.

This total not only covers food and drink, but also accommodation and transport home if the employer pays for these.
The number of guests can also include non-employees such as partners. On top of this, the employer will also get Corporation Tax relief on what it all costs.

Due to the recession, many firms may be  planning a frugal Christmas party this year, more staff parties could end up being tax-free.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.

The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. The gift from HMRC is available to businesses of all sizes.

But one penny over this limit and the full amount spent will become liable to income tax and National Insurance  for both staff and employer alike.

The business can also make a claim for Input VAT. When making your claim for input VAT however, the business should bear in mind that Customs & Excise view the expenditure on persons who are not employees to be entertainment and as such, you cannot claim the VAT on that proportion of the expenditure. In such cases, you will need to split the bill according to how many people are employees and how many are guests.

If you require any further information then please contact Trueman Brown on 01708 854943 or at www.truemanbrown.co.uk.