With the festive period nearly upon us people are generally in the latter stages of planning their parties but did you know that if you pay more than £150 per head (including VAT, drinks, transport, accommodation and any other entertainment) this is a taxable benefit for your employees? What’s more this is an annual limit so if you have two or three parties then you only have £150 per person to cover them all and if you spend so much a £1 more than this then everything is taxable; furthermore, if you don’t invite all employees from the same location then you don’t even get the £150 allowance!
So what can you do to reward employees that doesn’t result in them paying tax or that can reduce the tax they pay, well the answer is that there’s not a lot that isn’t considered taxable.
You can gift employees up to a maximum of £50 tax free per year provided this is not in the form of cash and HMRC go so far as to even note seasonal flu jabs as possible “gifts” in their guidance. In addition some items (such as an ordinary bottle, a box of chocolates or a turkey) may be considered to be “trivial” by a HRMC inspector and ignored altogether: However, “trivial” will vary from inspector to inspector as there is no formal set of rules governing this.
Goods with no resale value will also generate no taxable benefit though in practice this is difficult to argue and only some branded items will generally qualify.
Where goods are gifted to employees and they are considered taxable then they will need to be declared at the end of the year on the form P11D
Bonuses and Cash Gifts
Where ever there is a gift of or a bonus these should be processed through the payroll as normal with tax and NI deducted in the normal way.
Low income employees
For employees earning less than £8,500 per year then there is no tax to pay on gifts of goods, a form P9D will need to be submitted at the end of the year detailing the value. This is the final year in which this applies though as from 6 April 2016 there will be no low income employee’s threshold.
What can be done to prevent employees paying these costs?
Where employees would be taxed on benefits from parties etc. Then you can set up a PAYE settlement arrangement with HMRC (PSA) which allows the employer to pay the tax and NI on behalf of the staff and while this does not avoid paying tax and NI it can allow the employees to receive the whole of the intended benefit.
With the festive period rapidly approaching, it may be a good time to discuss what you intend to give your employees with one of the summ.it team.