Utilise the trivial benefits exemption to provide tax-free Christmas gifts

16/12/2020Tax Issues , Tax Saving Tips

How will people approach the Christmas office party is one question in the minds of so many of us. It’s certainly not off the menu. Employees will make sure to spread some holiday cheer among their workers. These are people who have been furloughed or working from home for 2020.

Taxes fade away the happiness at your end, no matter how excited you may be. You definitely want to hear more about all the trivial benefits offered at this point and time. What tax-exempt Christmas gifts are there? How do they help you keep your costs low? If you’re a business already struggling with finances, you probably want to hear more about these exemptions.


Let’s Find More About the Nature of the Exemptions

When the following conditions are met, a benefit is exempt from income tax and national insurance.

  • If your benefit costs less than £50.
  • If the benefit is not in the form of cash or non-cash voucher.
  • If the employee is not contractually entitled to the benefit.
  • If the benefit is not given out as an achievement award for the services provided as part of the employment duties.

Then another thing that bothers many of the employees is what happens when a benefit is given to more than one person. It’s impractical to work out the exact cost in every single receipt. Average cost really helps you out whether the benefit is trivial or no.

If you’re the director of a close company, you can receive tax-free benefits to a maximum of Directors of close companies £300 in a tax year (this includes the members of your family and household too).  For other recipients, there is no annual limit (but each individual trivial benefit must cost £50 or less).


Let’s Dig into Seasonal gifts

Use trivial benefits exemptions to give out tax-free Christmas gifts to your employees. Let’s dig into a few examples:

Example 1

An employer decides to buy 100 turkeys for their employees. The total bill around £4,800. The turkeys are not priced individually. So how does one work out the cost? The average cost of the benefit would be around £48. Let’s say all other trivial benefit exemption conditions are met, the turkey will be considered as a gift that’s not in any way given to the employer as a reward of their service, etc.


What’s the Gift Card Trap?

Take special care of gift cards topped on several occasions. Rather than evaluating each use of the card for trivial benefits exemption, HMRC takes the total cost of benefits for the calculations for one tax year. Let’s explain it better with this example:


Gift Card Trap Example

You’ve given a card to your employer for the exchange of a gift at a particular store. The total cost of the card will be around £30. What happens when the card is topped up with £30 for another special occasion? The card is topped up by a further £30 on the employee’s birthday. The employee is still eligible for the trivial benefits exemption. The moment he spends more than £60, he’ll be unqualified to claim the tax exemption.

Now that we’re clear on the tax exemptions on Christmas gifts, let’s make sure that we’re treating our employees right while doing our tax exemptions right.

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