Some employers may wish to give their employees a small gift or throw a staff party at this festive time of year. But what are the tax implications?
Small gifts to employees
Gifts can be classed as ‘trivial benefits’ and therefore exempt from tax as long as HMRC guidelines are adhered to:
- the cost of providing the benefit must not exceed £50 per employee
- the benefit must not be in cash form (including cash vouchers)
- the benefit must not be a reward for work or performance
- the employee must not be contractually entitled to the benefit
- the benefit must not be part of a salary sacrifice arrangement
One of the main conditions of tax exemption is that the cost of providing the gift or benefit must not exceed £50, including VAT. On occasions where an employer provides a benefit to a group of employees and the precise cost per person cannot be established, the average cost per employee can be used.
Where the gift consists of more than one item, e.g. a bottle of wine and a box of chocolates, then the total cost of the gifts is the cost of providing the benefit.
It should be noted that if the cost of the benefit exceeds £50 then the full cost becomes taxable, not just the amount exceeding £50.
The rules are different where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family. In this case, the exemption is capped at a total cost of £300 in a tax year.
HMRC guidelines for providing tax exempt parties / social functions for employees are basically that:
- the cost of the event must not exceed £150 per head
- the party / social function must be an annual event
- the party / social function must be open to all employees
Multiple annual parties / social events can be tax exempt as long as the combined cost of the events does not exceed the £150 per head limit.
If you’d like further information or advice on this, then please do contact us or refer to HMRC’s detailed guidance.