Christmas is all about happiness, joy and often giving to those you appreciate. For employers it can be difficult to decide how generous you really can afford to be over the festive period. There has been research conducted surrounding the ways in which employers make use of the opportunity of Christmas. Research has also been looking into the impact that the tax system has on acts of generosity over Christmas.

Generosity, how far should you go?

When employers were asked whether they took into consideration the cost if income tax and NICs when crafting Christmas reward schemes, only a tiny 15% said that they did. Only 5% recognised following this discussion that they should be considering these key aspects when making decisions. The majority of employers (42%) said that they didn’t plan with tax in mind around the Christmas celebratory period.

As well as the consideration of tax, employers were asked about the reasons behind their festive generosity. A huge ¾ of those asked said it was simply to show their team that they appreciate what they do. Just over 10% said that tradition was a key factor in theirs. 

When you own a business, you’ll be told again and again about the dangers of going overboard at the Christmas party. Despite these warnings which you’ll probably receive from several people, nearly half of all employers provide and pay for the whole Christmas party for their staff. 

Benefits, when do they become taxable?

Up until April 2016, there wasn’t a statutory limit on taxing benefits. It was welcome news when HMRC accepted the recommendation of a statutory limit where anything below would not be taxable from the OTS (Office of Tax Simplification).

There is a certain criteria which a gift/token must meet to be classed as a trivial benefit. The criteria is as follows: 

• Cost less than £50 to provide
• Not to be cash or a voucher which could be exchanged for cash 
• Not to be something which is given as a reward for performance or work
• Not given as part of contractual entitlement

Gifts (all year round) are starting to change from the traditional bottle of wine and box of chocolates. When given to all employees, the final cost to the employercan soon wrack up. As long as for each employee gift the above criteria is met, the principle applies. Please don’t forget that you’ll, as with everything, need to have accurate records to show evidence that the criteria has been met. 

The annual events

It’s common for employers to cover the cost of the staff Christmas party yet it’s still an event that catches many out. As with gifts, these events have their very own criteria that needs to be met to prevent tax costs. This criteria counts for any social events. The criteria goes like this:

• Costs no more than £150 per person
• Held on an annual basis 
• All employees must have the opportunity to attend. 

If you’re a business with multiple sites, annual events at each location still count. You can also host separate events for separate departments within your company. If all employees have the opportunity to attend one event, you’d be within the requirements. 

If you host more than one annual function with the cost per head over £150, only functions totally less than £150 per head would be included within exemption. As stated before, keeping accurate records is essential. In this situation, you’d need accurate records of the number of attendees to the event so that you can keep track of cost per person.

Example:

A business holds 2 events annually. They have a summer ball and a Christmas party. All employees of the business are invited to attend both. The overall cost per head of the Christmas party is £110 and the summer ball works out at £70 per head. 

The total of these events equals £180, over the £150 limit. Therefore, both of these events cannot benefit from the exemption. One could take advantage of it which would leave the cost of the other event to be reported through the P11D process or through payrolling if voluntary payrolling has been adopted. 

To finish…

Just lately we’ve seen a lot around PAYE Settlement Agreements (PSAs). A lot of this is due to the work of the OTS to increase levels of simplification. Despite all of this, it remains evident that employers will meet the tax burden of the employee when it comes to Christmas generosity. So whether your employer is more like the Grinch the whole year round or whether they’re not just generous at Christmas, it seems that most employers give a bit more than a little extra over Christmas…