Whilst everyone enjoys receiving presents at Christmas, employees may not be quite so happy if an employer’s gift comes with a tax charge attached.
The good news is that the trivial benefits rules (introduced in April 2016) can come to the rescue of employers who make Christmas, or other seasonal, gifts to employees. These rules provide a statutory exemption for what are termed trivial gifts.
For a gift to be trivial, and therefore exempt from Income tax and NICs for both the employer and employee, it has to meet all of the following conditions:
- it is not cash or a cash voucher (a normal gift voucher should meet this requirement);
- the cost does not exceed £50 per employee (or average cost if provided to a group of employees and it is impractical to work out the individual cost);
- it is not provided under a salary sacrifice or other arrangement; and
- it is not provided in recognition of particular past or future services performed by the employer (a gift on the occasion of Christmas should meet this requirement).
There is an additional cap of £300 on the aggregate value of trivial benefits that can be paid to directors or office holders of close companies (companies owned and controlled by five or fewer participators, such as typical family companies) or employees related to them in any one tax year. However, beyond this there is no limit on the number of individual trivial gifts that can be given to an employee in any one year, provided each gift individually qualifies for relief and the employer is not trying to divide a larger gift into several smaller ones.
It should also be noted that this is an all or nothing exemption - if the cost of a gift (including VAT) exceeds £50 then the full value is taxable under the usual benefits rules.
As well as gifts such as turkeys or hampers (provided they cost less than £50), the exemption can also be used to cover a staff meal or party costing under £50 a head if the normal staff party limit of £150 per annum either doesn’t apply or has already been used in the year (see this month’s Employer Focus article for more detail on Christmas parties).
More guidance on the trivial benefits rules can be found in HMRC’s Employment Income Manual.