With Christmas around the corner (sorry) now’s the time for a reminder that when it comes to putting the cost of gifts through the company books, HMRC is a virtual Santa Claus – providing the gifts are “trivial”.
Christmas can be a challenging time for payroll departments, trying to keep up with what can often be a flurry of incompatible benefits from across organisations. You know the sort of thing. The admin team all get half a day’s shopping leave (which payroll needs to process or monitor). Sales clock off early for a night out with an offer to make up any lost flexi-time (which payroll needs to process or monitor) and accounts do an in-office party and give everyone a time credit (which payroll needs to process or monitor).
But there is one way of giving employees a Christmas bonus this year that doesn’t involve hours of additional work for your payroll team and, for once, this is a benefit that can be offset against tax.
Trivial benefits became part of the landscape in 2016 when new legislation was introduced giving low value benefits in kind exemption from tax. The rules are as follows:
- Each benefit most cost no more than £50. If the benefit is for a group of people rather than an individual (eg the Christmas party) the £50 can be averaged per head.
- The benefit must not be given in cash or a cash voucher (but gift vouchers for a high street store would be allowed providing they were not exchangeable for cash).
- There must be no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes).
- The benefit must not be provided as a reward in recognition of a work-related service or employment duty.
In addition, the following clarifications apply:
- The total trivial benefits exemption for directors is limited to £300 per year
- The £50 limit includes any family members. So, for example, if partners are invited to the Christmas party, the benefit effectively becomes £25 each
- If the benefit exceeds £50 then the entire amount becomes taxable, not just the amount above £50
Examples of trivial benefits
If you are planning on using the trivial benefits exemption, you could apply it to any of the following, providing the above conditions apply:
- Giving employees a high street store gift voucher
- Buying each employee a present
- Paying for an in-office Christmas party
- Taking the team out for a meal
Deciding on the specific benefit, however, requires employers to walk a fine line, as often the distinction between taxable and non-taxable can lie not in the benefit itself, but in the description of it. A paid for working lunch, for example, would fall foul of being work-related, as would an end of year ‘well done for hitting performance targets’ celebration. And whilst buying a £50 Christmas hamper with a ‘Merry Xmas’ message on it would qualify, the same hamper with a card reading ‘For meeting all your targets this year’ would not.
Ultimately, the key to whether a trivial benefit is taxable or not appears to lie in accepting HMRC’s encouragement to forget work and simply enjoy Christmas.
And if you’re still planning on giving time as a gift this Christmas and want some help in making managing the payroll easier, talk to our experts now.