It might be that an employer gives a small gift to employees. If the gift is a “trivial benefit”, then no tax or national insurance needs to be paid. However, for a gift to constitute a trivial benefit, it must not be something that has real monetary worth (such as vouchers) or something that can easily be converted to money (such as jewellery or antiques).

HMRC regard the giving of seasonal gifts such as a turkey, a bottle of wine or a box of chocolates as being trivial benefits on which no tax is due. However, giving a case of wine or a Christmas hamper would stray into the territory of something that is non-trivial and would require tax to be paid.

These non-trivial gifts need to be reported by the employer on a P11D and in most cases have Class 1A national insurance contributions paid on them, unless they are dealt with under a PAYE settlement agreement. If no settlement agreement is in place, the employee must pay the tax through an annual self assessment tax return.

Entertainment

There is a special exemption from tax and national insurance for annual events. In order to qualify, broadly, the event must be an annual event, such as a Christmas party or summer barbeque; the event must be open to all of your employees; and the cost per head of the event can’t be more than £150.

The £150 limit is not an allowance and if the event costs more than £150 per head, the whole amount is taxable, not just the excess.

On the other hand, if you have more than one annual event you can use the £150 per head in whatever way gives the best result, for example allocating it to a single event, or allocating it to two separate events, provided the total cost of them is not more than £150 per head.

Helpfully the cost per head must be calculated taking into account everyone who attends the event, not just the employees, so if an event includes spouses and partners as well as employees, it may be enough to reduce the average cost per head to below £150.

The costs of the event must take account of everything associated with it – including transport and accommodation costs if these are paid by the employer to enable employees to attend. It must also include all of the VAT paid by the employer.

As with other benefits, if an event does breach the £150 limit, its value needs to go on a P11D and have Class 1A national insurance contributions paid on it, unless it is dealt with under a PAYE settlement agreement.

Happy Holidays

With a bit of thought in advance it can be easy to be a generous employer without causing a tax headache for your employees and without having to give an extra gift to the tax man!