With Halloween approaching “silly season” is fast approaching, the plans for the annual office Christmas party are already well under way, eager venues are already circulating offers if you book with them, offices are starting to arrange gifts to their most treasured clients, and bosses are starting to decide how much the Christmas bonuses will be. However, this time of year can be a minefield for businesses due to the various tax rules that surround workplace “rewards”.

Giving Bonuses or Cash gifts to your employees

The giving of cash gifts and bonuses is slightly less of a minefield then some of the other options, as they are treated as normal pay and subject to tax and National Insurance (NI) in the normal way. Payments given as bonuses or gifts should be put through the payroll and tax / NI deducted at source as with the normal pay. The same rules also applies to any vouchers you give that can be exchanged for goods or services.

Giving actual gifts to employees 

The giving of gifts, is where things start to get a little more complex. Anthing that could be considered trivial benefits, and are relatively low cost, for example a turkey, ordinary bottle of wine or box of chocolates will not need to be declared on form P11d.

An employer with a large number of employees may find that the total cost of providing gifts of this level to each employee to be considerable, but so long as the the gift to each individual employee is low this principle applies – regardless of the total cost to the employer and the number of employees concerned.

However, If the gift extends beyond one of the items mentioned above, for example from a couple of bottles of wine, to a complete case of wine, or from a single turkey to a full Christmas hamper, you may need to consider the contents and total cost before being able to determine whether the benefit is trivial. In cases like this, you should look at all the factors objectively and use your judgement but keep in mind that if the HMRC ask, you maybe required to justify your decision to them.

Christmas parties

A good party can be an enjoyable and tax-efficient way of rewarding employees. According to the HMRC, employees and their partners do not pay tax and national insurance on any parties they attend so long as the cost to the business is less than £150 per head in the tax year (starting 6th April). 

The cost of the function includes VAT and you also have to include the cost of any transport and/or overnight accommodation that you intend to provided to enable your employees to attend. Then, divide the total cost of the function by the total number of people (including non-employees) who attend in order to arrive at the cost per head. The event must be made available to all employees or (if you have more than one location) all those at a location.

This is not the end of the regulations regarding parties however, if the cost per head of a single party is greater than £150, then the whole cost will be subject to tax and NI. So, for example, if the cost of a party any transport or overnight accommadation averages out to £185 per head, then the employee is taxed on the full amount (keep in mind, that if thier partner also attended, then they would have to be taxed on a benefit of £350).

Another scenario that could influence how the tax would be applied would be if the employer arranged 3 parties over the course of the year costing £110 per head, then £65 per head, and finally £40 per head, then tax and NI would be levied on the £65 party. This is because the £110 and £40 parties would be covered by the £150 annual exemption, the £65 party wouldn’t be and so the whole event was taxable. If you would like to see further examples of when parties may not qualify for the exemption.

Although the above information is based on the HMRC guidance as always, with all tax matters, you should check with a qualified accountant before you take any action that might involve you or your employees in any tax problems. It is far better to take a few moments to talk to your accountant that could save you hours, or even days of work and considerable expense should a mistake be made and a tax inspector discovers it.