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1 Dec

Trivial Benefits and Staff Parties

As the cold wintery days become the new norm, and Christmas wrapping is how you spend your December evenings, office talk turns to the Christmas party and secret Santa. Who doesn’t like receiving a gift in the festive period? But unlike the pair of socks in your stocking, HMRC pay attention to gifts you receive from an employer, and whether or not tax need to be paid on the benefit you receive.

What is a trivial benefit?

HMRC have published guidance allowing employers to provide trivial benefits to employees without reporting them. The rules are pretty strict, and require the gift/benefit to meet a full set of conditions to be exempt from tax:

  • 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
  • It isn’t in the terms of their contract

In the event that all the criteria are met, the benefit is known as a trivial benefit. This means that there is no need to inform HMRC and it does not need to be reported on your annual P11D forms.

Typical benefits that are allowed under trivial benefit rules are taking employees out for a meal to celebrate a birthday, buying employees a Christmas present or sending a bunch of flowers on an occasion.

In the event that gifts are given that cannot be counted as trivial benefits, the employer must:

  • Consider whether it should be reported as part of the employees pay, under normal payroll rules
  • Consider whether it should be reported on the form P11D and pay Class 1A National Insurance on the value of the benefit

The type of benefits not allowed as a trivial benefit exemption include:

  • Providing a working lunch for employees (because this is related to their employment)
  • Gifts, incentives or events related to performance targets/results or employment services e.g. team-building events
  • Taxis when employees work late

Is there a limit to trivial benefits each year?

Ordinary employees can receive trivial benefits of £50 or less once a month provided the other conditions are complied with.

For directors of closed companies, the limit is six monthly benefits in a tax year.

Broadly speaking a company is closed if it is:

  • Under the control of five or fewer participators and their associates, or
  • Under the control of directors who are participators and their associates

What about Summer or Christmas parties?

Many employers provide a number of functions to their employees. Typically, these take the form of an annual Christmas party or a summer event. The costs of the event incurred by the employer in respect of the employee qualifies as a tax-free benefit for your employees providing that you meet the following conditions:

  • The total cost must not exceed £150 per head, per year.
  • £150 includes VAT together with any extra costs such as transport and accommodation.
  • The event must be primarily for entertaining staff.
  • The event must be open to all staff (in that location, if you have several branches or departments).
  • The event must not just be for directors unless all your staff are directors.
  • The cost of the whole event is an allowable expense for your business.
  • You can claim back input VAT but this may be restricted where you are also entertaining customers.

It’s important to remember this is an exemption, not an allowance. So, if your party costs £151 (or more) per person, you won’t be able to claim the first £150 as a business expense – the whole cost will be taxed as normal.

The exemption also spans the whole year, so the combined cost (per person) of all parties in a single year cannot exceed £150. If there are two parties, for instance, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one, leaving the other one as a fully taxable benefit.

Interested in contacting us in regard to this post or have another question you would like us to answer? You can phone or email our office. More information on contacting us at contacts

 

 

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