It’s Christmas time but not as we know it.
The Christmas office party has been cancelled by many employers but there are alternative ways for employers to spread a bit of cheer amongst their staff. Surprisingly, as in previous years, it is in the form of HMRC as Santa giving away tax breaks.
HMRC Santa present number 1 – Trivial benefits
Employers can give up to £50 tax-free in trivial benefits which are really for the ad-hoc – Christmas, weddings, birthdays etc. So, a Christmas hamper up to the value of £50 or vouchers up to £50 not redeemable for cash would fall within the definition of a trivial benefit.
In summary, a trivial benefit can be provided to an employee provided:
- It does not exceed £50
- It isn’t cash or a voucher that can be exchanged for cash
- It is not a reward for their work or performance
- It is not contractual
There is no limit on the number of trivial benefits of up to £50 that are given to an employee in a year.
There is an exception to this with an annual limit of £300 for:
- Directors of a close company i.e. owned by 5 or less shareholders
- Other office holders of a close company such as company secretary and Chairman
- Members of directors and other office holders family or household
Of course, what HMRC Santa gives can also be taken back by challenging if significant trivial benefits are provided to any one employee on the basis of it being reward for work.
HMRC Santa present number 2 – The virtual Christmas party
HMRC allows employers to spend up to £150 per head per event for staff parties which usually covers the Christmas party.
If the event costs more than £150 per head, then none of the cost of the party is exempt from tax and HMRC would seek to tax the employees unless the employer agreed to pay the tax on behalf of the employees.
If there are 2 events, then the cost per head of the second event is added to the first event to check if the total is over £150. If the 2 events exceed the £150 per head limit, then whichever event uses up the most of the £150 is exempt and the other event is taxable.
This year many companies are having virtual staff parties and HMRC have agreed that the £150 per head exemption will apply to these parties provided all the usual conditions are met.
That is the concession they have given due to Covid-19.
This is the example given by HMRC:
A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.
If you have more questions on the records to be kept to keep HMRC Santa happy and avoid it turning into The Grinch, the Real Santa’s little elves aka the CavanaghKelly tax department, will be happy to help.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.