The C Word (Christmas!) 🎄
/With only 59 more days until Christmas many businesses are busy planning Christmas events and gifts to reward their staff and celebrate the end of a tricky year for most - but leaving an employee with a tax bill for a party or a gift would be an unwelcome Christmas present so here is a round up of what an employer can spend and what to do if you overindulge!
Christmas Events
There is an income tax exemption for each employee for annual functions, this covers all functions during a tax year (6 April to 5 April) not just the Christmas party The conditions for the exemption are
The function must be available to all employees generally (or in one location where there is more than one)
And, it must be an annual function e.g. Christmas party, summer barbeque. So a 25th anniversary party wouldn't qualify as it can not be an annual event.
The exemption is £150 per employee so if the annual party was less than £150 per head there is no tax charge on the employees. When working out the cost per head any associated transport and overnight accommodation must be included.
If the cost for the function is more than £150 per head then the whole cost per head is chargeable to tax on the employees, not just the excess over £150.
Where a business has multiple annual events during the tax year that qualify for the exemption, the cost per head must be calculated and if the total cost for all events doesn’t exceed the £150 limit there would be no charge but if the cost does exceed the £150 then the exemption can be used against whichever functions best utilise the exemption and any remaining functions are a benefit in kind for the employee potentially giving them a tax bill. The £150 can not be deducted from the total cost per head and the balance taxed.
Christmas Gifts
An employer may provide a gift to employees and provided the cost of the gift is “trivial” - less than £50 per employee then there is no taxable benefit on the employee. Typically this would be a bottle of wine, chocolates, flowers or a gift voucher.
If the cost of the gift exceeds £50 then it is taxable on the employee and should be included on a P11d.
This rule does not apply to cash gifts or vouchers which can be exchanged for cash which are always taxable and should be included in the payroll calculations.
Exceeded the exemptions?
If the employee exceeds the exemptions in the tax year then the taxable amounts have to be included on a P11d for each employee at the end of the tax year. The employee will then have their Paye tax code altered to collect the tax through their salary.
Alternatively, the employer can apply for a PAYE Settlement agreement (PSA), this is an arrangement between HMRC and the employer where the employer agrees to pay the tax on any gifts and events each tax year and so the employee is unaffected.
A PSA can be applied for anytime during the tax year and up to 5 July following the end of the tax year. For the 2023/24 tax year the deadline for applying for a PSA is 5 July 2024.
If you would like more information or advice on these matters please contact us here
