Now is the time of year many employers would be putting the finishing touches to the work Christmas party to make it the best ever. Keeping the cost per attendee to less than £150 meant the party could be treated as a tax-free benefit under HMRC annual event exemption.
Social distancing means this can’t happen this year, so many firms are ditching the party in favour of a hamper– all employees will receive one and the cost can be kept below £150. This is perfect in principle, but under current legislation this will be a taxable benefit for the employee, despite the fact that the same cost (on a per-head) basis wouldn’t be taxable, if the firm provided a traditional Christmas party. I therefore suggest that HMRC should relax the rules this year and give everyone a Christmas present and HMRC would not miss out.
Providing staff with a ‘Christmas hamper’ or similar benefit (e.g., nice wines, chocolates or potentially even some gift vouchers) is a nice idea but such gifts would – if they are in excess of £50 per head – innately be a taxable benefit.
Where the cost is less than £50, it may be possible that the hamper or similar can be exempted from UK taxes under the ‘trivial benefits’ rules. Though even here firms need to be careful – the £50 per head maximum includes the VAT payable by the company, for example. Another risk area is with gift vouchers – for the exemption to apply, it must not be possible for the employees to turn these into actual cash.
Firms which want to do right by their employees have to be extremely careful that they do not break HMRC rules, turning what was a nice idea into a Christmas nightmare.
Where gifts are ‘linked’, the £50 trivial benefit exemption needs to be considered in regard to the total value of the gifts provided. For example, if a firm provided its employees with wines on the 15 December costing £30 and a hamper on the 16 December costing £45, HMRC would realistically argue they are one linked gift and fully taxable, as the £50 limit has been exceeded.
If any of the relevant limits are exceeded, most firms would then have to cover the taxable benefit charge that arises in such cases via a PAYE Settlement Agreement (PSA) – an annual disclosure between the employer and HMRC, whereby the employer agrees to cover the tax and National Insurance contributions associated with this type of benefit. While the PSA option is not compulsory – companies could simply report the costs as a taxable benefit and have the employees pay the tax directly – such an approach would hardly be good for staff morale.
Firms could simply tell staff that they will run the party next year, but many would like to make a gesture and supply a decent hamper without any complications, and they could if HMRC relaxed the rules.