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As the giving season is on its way and many have already started present planning. We have answered your festive tax questions to help make gift giving a little more cost effective, as it seems the tax man isn’t as generous as Santa.

Christmas Parties:

Having an annual function any time of year is an allowable tax deduction for a business. Employers can spend up to £150 per head on annual staff events without it being treated as a taxable perk. But be careful, if you spend £151 per person the whole amount becomes a taxable benefit for the employee.

Client Entertaining:

If the event is predominantly for staff, you can invite clients without prejudicing the staff’s tax treatment as set out above.

Staff Gifting:

In previous year, the only gifts that have no tax implications are seasonal gifts such as a turkey, an ordinary bottle of wine or a box of chocolates. But from April 2016 non-cash vouchers can be gifted and employers can now benefit from the exemption.

Trivial benefits legislation came into action April 2016, making room for more benefits for staff and directors. For more information on the different benefits you can claim, contact us on 0845 054 8560.

The below article is taken from AccountingWeb

It explains how the new exemption for trivial benefits works.

Basic rules

The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out, without having to put it on the P11D and without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income tax or corporation tax relief on the cost.

There are three key conditions:

  • the trivial benefit must cost no more than £50
  • the benefit must not be a reward for services or in any way contractual
  • the benefit must not be cash or a cash voucher

The legislation does not impose a limit on the number of trivial benefits that an employer can provide. It can be suggested that an employee could potentially clock up £12,500 a year of tax free benefits. This would equate to a £50 benefit on each of 250 working days in the year.

Suppose you buy four £30 bottles of champagne to give to each of your employees every so often. If you take them into the office and say “Hey guys – the numbers for this month are looking great so here’s a bottle of champagne”. That would be a reward for services and so would be taxable and NICable. But if you were to say “The sun is out, the sky is blue – I’m in a good mood and this is for you!” – then the champagne would be a trivial benefit.

Directors

The next question is whether director/shareholders can enjoy trivial benefits themselves, and the answer is “Yes!”

But HMRC knows what directors can be like, so the legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household).

Gift cards

Say you plan to use the company credit card to buy 12 gift cards with £50 credit on each of them. Over the next few months you will occasionally give one of these to yourself and one to your partner (who is also a director of the company). These gift cards cannot be exchanged for cash.

How much will you save? Each of you would have to pay £126 tax and NI on £300 of extra salary (assuming each is in higher rate bracket) and the company would pay £41 of secondary class 1 NIC. So between you, £335 is saved.

If you would like to discuss any of the above, please call us on 0161 359 4227/0845 054 8560