It’s the season for office parties, office Secret Santa and more. How can HR Departments support the festivities and at the same time make sure all possible tax reliefs are being used and used properly, (keeping our friends at HMRC happy)? Let me share 8 areas.
With your company in festive mood it’s a good time to award some staff members for their outstanding contribution to your business and for going beyond the call of duty.
You can pay your staff tax free income for suggestions that benefit your business. Are you making use of both kinds of awards?
• encouragement awards – for good suggestions, or to reward your employees for special effort
• financial benefit awards – for suggestions that will save or make your business money
Encouragement awards are tax free up to £25. Financial benefit awards are exempt up to £5,000.
Please note, as with all tax reliefs and tax exemptions, there are conditions to meet before you go ahead and pay your staff tax free income this Christmas.
Some of the conditions for staff suggestion scheme includes:
• the suggestion scheme must be open to all your employees
• the suggestion must relate your business
• your employee must go beyond their call of duty (i.e. suggestions made as part of their normal work won’t count)
• the suggestion can’t be made at a meeting for proposing new ideas
To keep HMRC happy check EIM06600 on their website.
Tax Free Gifts
In addition to awards, gifts you give to your employees are normally exempt from tax and NI. However, this exemption only applies if the gift is deemed to be trivial. For a gift to be considered a trivial benefit, it must cost £50 or less, and not be part of the employees’ contract or a reward for performance. It must also not be a cash reward as HMRC will tax this as earnings (payroll tax). So classic gifts, including a bottle of wine or box of chocolates, would be exempt from tax.
Tax Efficient Vouchers
If you give your employees cash vouchers, the amounts would need to be put through the payroll and subject to tax and National Insurance. Non-cash vouchers up to £50 may be exempt under the trivial benefit rules. Where the voucher exceeds £50, you will need to report these on a P11D form to HMRC.
Tax Free Christmas Parties
An employer can spend up to £150 per head including VAT per year, in providing annual social functions to entertain staff.
But here are some points to bear in mind. This £150 is per head and not per staff member. To work out the cost per head, divide the total cost by the number of attendees (staff and any other guests). When employees’ spouses and partners attend the event you can budget for £300 per couple. The £150 is not an allowance. It’s an exemption and so if the cost per head works out at £151, then the full £151 is taxable and not just the £1 excess. So, do watch out for attendees dropping out last minute as this could spoil the “tax party” for you and your staff.
Thinking of having two parties during the year? Let’s say the first party is budgeted at £145 per head. The second party will cost £100 per head. The £150 limit can be used against the first party leaving the second party as a fully taxable benefit.
To keep HMRC happy, ensure that the annual event is a staff social event and open to all staff. Plus, do keep proper records especially on the number of attendees. For more info search for EIM21690 on HMRC’s site.
Tax Efficient Client Entertainment
Bear in mind that if you, or your colleagues happen to entertain clients this Christmas and you meet any of the following two conditions, these expenses can be claimed against tax. These are the so-called exceptions to the rules.
Contractual obligation: Where it’s part of your business to entertain, say if you’re providing a training course to businesses and you entertain them as part of the course – maybe providing tea, coffee, lunch and so on – even if it’s food, you’re still allowed to claim that because you’re under a contractual obligation to give them food.
Quid pro quo: Let’s say you’re researching for a new policy proposal you need to write. You ask a friendly expert out to lunch this Christmas in exchange for her insight into the topic. Because she is giving her expertise but not benefitting apart from getting free lunch, you’re actually allowed to claim the expense, even though it appears as entertainment.
In order to keep HMRC happy, do have plenty of evidence to support your claim.
According to a recent study by Gallup, about 60% of employees are not motivated in the work they are doing– they are present but not engaged. This is not good news for most employers. However, most employees do look forward to Christmas. Why not capture this mood and announce some good staff retention and performance incentives at Christmas? You can consider things like tax efficient share option schemes if appropriate or tax efficient remuneration packages. How about Christmas shopping half day off? This may well save you some New Year recruitment costs.
Long Service Awards
Let’s say you have an employee who has worked for you for a very long time. It’s time for them to move on and you’ve both decided that December will be a good month to say your goodbyes. You can give them a non-cash award of up to £1,000 if certain conditions apply. Search HMRC’s site for ‘long service award’ for more details.
To make the most of tax deductible Christmas expenses every year, review policies and plan ahead for 2019 with advice from your accountants/specialist tax advisers. That way you’ll make the most of the benefits available to your organisation and your staff.
Merry Christmas one and all!
- Jonathan Amponsah: How can HR make Christmas Tax Deductible - Thursday, December 13, 2018