Say Thank you for your team in a tax efficient way
Time seems to be running away with all of us this year and it will be Christmas Day two weeks today.
The absence of the normal seasonal fun due to Covid-19 has robbed us all of the festive spirit in some way or another. Christmas just does not feel the same this year, we cannot see all our friends and family, the shopping and eating out is curtailed and the office parties are missing.
The mood is further dampened when we hear of possible Tier 3 restrictions that could be imposed in London and the home counties before Christmas and we are not even going to mention the “B” word today!
We need to lift each other up in any which way we can. Many of our clients want to do exactly that for their employees. They want to inject some festive spirit and take this opportunity to thank their staff for working tirelessly throughout 2020 because it has been a tough year. So here we remind you that you can say thank-you to your team without adding the burden of tax either to yourselves or your staff.
Virtual Christmas Parties
You can use the HM Revenue & Customs (HMRC) annual exemption for staff parties for example. This is an exemption of up to £150 (including VAT) available per head that businesses can utilise for entertaining their teams.
HMRC has recently confirmed that this exemption will apply to the costs associated with a virtual party. So, this could include providing entertainment and refreshments (including alcohol) for your teams to enjoy. The expenses will be tax allowable against profits and the employee will not have to pay any tax either. Plus you can claim back any VAT.
Please note that the exemption is not just limited to Christmas so it can still apply if you decide to postpone your party. However, it runs per each tax year, i.e. 6th April to following 5th April so the current years exemption will expire if you do not utilise it by 5th April 2021.
How Does The £150 Limit Work?
The £150 applies per attendee at an event, or multiple events. It can include accommodation, transport, entertainment and food/drinks. It can include partner or family members of the employee. However, the following must apply:
It must be open and available to all employees (you could however have different events for different employees).
The purpose of the event must be to entertain staff.
It must not exceed £150 per head, otherwise the whole amount is taxable; it is a limit not an allowance.
You can have multiple events that make up the allowance e.g. Summer Picnic and Christmas Party.
The cost per head of each event is calculated simply as the total cost divided by number of attendees.
Remember, the limit is per head attending, not per employee.
This allowance was introduced by HMRC from 6th April 2017 but in our opinion, it is still not used extensively by businesses, either because they are not fully aware of it or because they have a general awareness, but do not know how to apply it in practice.
Either way, it is a very useful gift from the taxman which should no longer be ignored.
It can include gift cards (not convertible to cash), bottles of wine/spirits, hampers or any other festive gifts you can think of not costing more than £50 (including VAT) per gift.
However, you cannot give away cash.
So, What Are the Rules for Trivial Benefits?
The rules are there to ensure that the gift is a genuine gift there should be an element of surprise attached to it as with most great gifts. So, what do we mean by element of surprise?
The gift cannot be a reward for service (as this may carry some expectation set out in the staff manuals) although there is an altogether separate exemption available for long term service reward which does not form part of Trivial Benefits rules
It cannot be contractual
It cannot form part of the salary sacrifice scheme (which is contractual) that you may be operating
It cannot be habitual and therefore again creating an expectation, i.e. every Christmas.
It cannot be a reward for doing the job
It cannot be a reward for achieving targets
- Close company director/shareholders have a limit of £300 a year (close company is where there is 5 or fewer shareholders)
You went shopping and noticed some great deals on Christmas hampers. You purchased hampers at £40 each for your six staff and had them delivered before Christmas. You did this just because it was Christmas and you wanted to share the festive spirit. You have never done this before. It was a random and spontaneous act on your part this year due to all the difficulties. This would be fine, and you will have happy smiling faces.
Next week you went shopping again and saw another deal on Champagne, and you brought six of them again. You gave the fizz to the staff on New Year’s Eve as a celebration for working hard and generating extra sales for the Company.
Well, you will still have some happy smiling faces but that may soon turn into sad faces when you tell them that the cost of the gift needs to go through the payroll because the Champagne is a gift for recognition of service i.e., generating the extra sales!
The difference between the hampers and the champagne is important to understand. The former was a gift because of being in the festive spirit, whereas the latter was an opportune moment to thank the team for their job. In fact, it was a reward for service.
Gratitude is the simplest and most powerful way of acknowledging another person’s contribution to your efforts and of course Christmas is the season for giving. So hopefully our reminder of the above rules may help you decide how you would want to say thanks to your staff. If you decide that they would rather have some cash then just payroll the cash amount as a Christmas Bonus.
“When we give cheerfully and accept gratefully, everyone is blessed.” —Maya Angelou