Christmas is nearly upon us and if you are struggling with buying gifts for your team members or find it hard to understand the tax on office parties, don’t worry, GreenStones are here to help!
Throughout this blog we are going to discuss all of those things, as well as the best way you can gift to charities.
Trivial Benefits
Firstly, let’s explain what the term ‘trivial benefits’ mean. Trivial benefits are best known as a small gift or token which is tax and National Insurance free.
HM Revenue and Customs (HMRC) don’t need to be notified, however there are a number of conditions which apply, including:-
- The cost of the benefit does not exceed £50.
- The benefit is not cash, or a cash voucher.
- Gift cards are allowed.
- The team member is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme.
- The benefit is not provided in recognition of particular services performed by the team member as part of their employment duties (or in anticipation of such services).
If you do end up providing trivial benefits as part of a salary sacrifice arrangement, you will need to report it on a P11D form, depending on which amount was the highest (either the salary given up, or the cost you paid for the trivial benefit).
If you are a director of a ‘close company’ (a Limited company which is run by five, or fewer shareholders) then you are unable to receive trivial benefits that are worth more than £300 in a tax year.
Tax on Team Entertainment
When an employer provides team member entertainment, for example a Christmas party, the expenditure is not disallowed by the tax legislation. However the legislation is not as simple as that.
An employer is allowed a tax exemption for team entertaining but the relief only applies to annual parties and is set at a maximum of £150 per head (note, not £150 per employee) including VAT. An employer is allowed to have more than one team function a year providing they are open to all team members, for example, a firm could have a Christmas party, a summer BBQ and an Autumn event, each costing £50 per head.
If the cost goes over £150 per head then all the costs are taxable as a benefit in kind (not just the amount in excess of £150). Any overnight accommodation or taxis at the end of the night have to be included in the calculation. In the event that the limit is exceeded, the employer can apply for a PAYE settlement agreement.
In terms of VAT, the good news is that although there is an input tax block on business entertaining expenses, the block does not include hospitality provided for team members. In such cases, the cost is classed as a team member welfare or motivational expense – and input tax can be claimed. However, not such good news in relation to the meals for non-team members – the input tax is disallowed in full.
Gifts to Charity
Where possible, higher rate taxpayers should add “Gift Aid” to any payments to charity. This is because it provides additional benefit to the charity, as well as for the individual to obtain additional tax relief.
For example, where an individual makes a £20 cash donation to charity, the charity is able to reclaim a further £5 from HMRC, making a gross gift of £25. Where the individual is a 40% higher rate taxpayer, they will be able to claim a further £5 tax relief under self-assessment, reducing their net cost to £15.
Please note that the contributor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will be taxed on the shortfall.
Gift Aid does not just apply to gifts of cash. Many charity shops will now sell your donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.
If you would like further advice on Trivial Benefits, Team Entertainment or Gifts to Charity, please give the team a call on 01733 371180.