Would you like to reward your staff with gifts this Christmas? To help you decide on the simplest and most tax efficient ways of gifting, we have outlined the tax considerations below:
Are Christmas gifts to staff taxable?
Provided the cost is ‘trivial’ there will be no Tax or National Insurance payable if the cost of the gift (inc VAT and delivery costs) is under £50.
The 'trivial' gift cannot be a sum of cash or a cash voucher, it cannot be a reward for work or a term written into the employment contract. Examples would include a bottle of bubbly, flowers or a box of chocolates. Directors cannot receive tax relief on trivial benefits of more than £300 each tax year.
What are the tax implications when a Christmas gift exceeds £50?
Christmas gifts to staff, which exceed £50 in value need to be declared to HMRC. This is typically reported on the employee’s P11D.
The £50 is not an allowance. As a result, a gift costing £60 would be taxable in full. The employee will be required to pay income tax and the employer will pay National Insurance.
How are cash bonuses and vouchers taxed?
Any gift of cash to an employee will be taxable as earnings and will need to be included on the monthly payroll. This means the bonus or voucher will be subject to Tax and National Insurance, where applicable.
Vouchers, which can be exchanged for cash are treated the same as cash received (as earnings per above). The employee will be taxed on the full value of the voucher.
How are non-cash vouchers taxed?
Vouchers that can be exchanged for goods and services only are known as non-cash vouchers.
Non-cash vouchers which exceed £50 are taxable and must be reported on the employees P11D.
Non-cash vouchers which are under £50, will fall within the trivial benefits exemption (provided the necessary conditions are met).
What are the tax implications of having a staff Christmas party?
In summary, as long as the event is available to all staff and costs less than £150 per head the party is tax free. The total cost would include a pro rated amount, by number of employees, to include the cost of venue hire, food, drink, transport etc.
The £150 limit includes all staff events throughout the year and where the limit is exceeded there will be tax and national insurance implications on the event that takes the cost over the £150 threshold.
What are the tax implications of giving Christmas gifts to clients?
Gifts (non-promotional) to clients are not deductible against profits. They are classed as entertaining, which is not tax deductible. Examples would include alcohol, food hamper, tobacco, etc.
Promotional gifts to clients would be classed as advertising, which are tax deductible. For these gifts to qualify they must clearly advertise the company with personalised branding or logo. Examples would include branded stationery (pens, diary, etc), calendars, mouse mats, mugs, plus many more items.