Employee tax concessions

No-one is going to disagree that the last few years have been stressful. Aside from the gloomy economic indicators we have had to cope with, we have also had to contend with COVID disruptions. Which is why it would be good to relax and unwind, during the forthcoming Christmas, New Year holidays.


To help, we have listed below two strategies to make the most of the tax concessions available that will hopefully boost your enjoyment of the Christmas – New Year break. And a couple of ideas to spread goodwill into your local communities. 


Christmas party

Have you organised a celebration with your staff? It is possible to claim tax relief for any costs involved and without creating taxable benefits for you or your staff.


There is a tax-free allowance for the provision of an annual party or other event for the benefit of staff and their partners. The present limit to tax relief is £150 per head. If this amount is exceeded, the full cost of the benefit is taxable not the excess over £150.


The event must be open to all employees and be an annual recurring event.


Where it’s not possible to calculate individual costs, an averaging process can be adopted. There are also other considerations that must be met to qualify for this relief. For example, if your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.


Christmas gifts

Another way to benefit staff is to consider making small gifts.  You don’t have to pay tax on a benefit (gift) to your employee if all of the following conditions are complied with:


  • it cost you £50 or less to provide;
  • it isn’t cash or a cash voucher;
  • it isn’t a reward for their work or performance; and
  • it isn’t in the terms of their contract of employment


Gifts that fall into this category have been labelled by HMRC as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.


Any gifts that do not meet this definition will likely be taxable.


Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders.


Watch out for VAT charge

If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.


A baker’s gift

HMRC have confirmed that if a baker reduces the price of fresh bread at the end of the day, this is a normal commercial transaction (as the bread will be worthless by the next day) and the cost is allowed in full.


As an increasing number of people are challenged by the current cost of living crisis, retailers who sell perishable goods may be able to spread a little goodwill by distributing unsold goods in this way.


Charitable donations

Finally, you may want to increase the number or value of charitable gifts you make. Charities serving your local community will be especially grateful for donations received over the Christmas period.


Need more information?

If you need more information regarding any of the topics covered in this update, please contact us.


Finally, we’d like to wish all our clients and contacts a happy Christmas and happy and healthy New Year.

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