‘Tis the season to be jolly (and generous and tax efficient!)

Showing your appreciation of your staff’s efforts by means of gifts and benefits is good for morale, but you need to take care to do this in the most tax efficient way and to ensure any taxable benefits are properly declared.  If you go about it in the right way you can give tax free benefits to your staff and obtain tax relief for your business.

Cash Bonuses – If you treat your staff to a cash bonus this must be put through the payroll and the appropriate tax and national insurance must be deducted.  Unfortunately there is no “de minimis” or “exemption” to this rule, all cash is taxable. Otherwise we would all request our wages in cash if we were going to avoid paying any tax and national insurance!  Any cash bonus can be “grossed up” through the payroll though so the member of staff gets the required amount in their hand after tax.

Gifts – If you provide gifts to your staff such as a bottle of wine, chocolates, flowers, high street gift cards etc there are no tax implications providing that the gift is considered to be ‘trivial’ by HMRC.  However cash gifts are excluded from this.  There is now a statutory limit of £50 for ‘trivial’ gifts so anything up to this limit can be gifted tax free without any declaration needed to HMRC.  If you have made gifts, or plan to make gifts to your staff in excess of this amount these gifts are likely to be taxable.

Entertainment – You can entertain your staff without causing them a tax liability.  You can spend up to £150 per year per head without any tax implications.  This limit will include the Christmas party, the summer barbeque and any other similar functions.  The limit is £150 “per head”, so £300 per member of staff if partners are invited. Note though that it is for “annual events” not one off functions, so make sure that the Christmas party/BBQ etc is on the rota for next year and the year after as well!

PAYE Settlement Agreements – Your staff will appreciate the nice Christmas hamper you gave them, or the £100 Marks & Spencer gift card you gifted to them.  Something they will not appreciate quite as much however, is the tax bill from HMRC on their Christmas gift if it exceeds the £50 “trivial” gift exemption.  If the employer would like to continue their generosity and foot the tax and national insurance bill themselves they can set up a PAYE Settlement Agreement with HMRC.

If you would like to discuss staff benefits, please feel free to call Simon Kirkbride at our Penrith office on 01768 864466, or Kathryn Brown at our Carlisle office on 01228 530913.

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