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. Prior to April 2016, there was no financial limit on what could constitute ‘trivial’ for these purposes. However, following a change in the law with effect from 6 April 2016, for a gift to constitute a trivial benefit, the cost of providing that benefit must not exceed £50 per employee. It must not be cash (or a cash voucher), nor can it form part of a salary sacrifice arrangement nor be given in recognition of particular services provided by the employee.
HMRC suggests that, typically, trivial benefits are items provided solely for staff welfare, rather than in recognition of any particular activity of the employee. The guidance gives an example of a seasonal gift such as a turkey as being the kind of item to which this exemption could apply and therefore not be subject to tax.
Any non-trivial gifts (i.e. those exceeding £50, or failing one of the other conditions) 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.
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 is just a little over the £150 level, it might be possible to reduce the average enough by inviting a few extra non-employees.
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.
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!