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Expenses and benefits: Christmas gifts

Source: HM Revenue & Customs | | 27/09/2017

It is established practice that Christmas presents paid in cash to employees are almost invariably taxable as earnings. This view has been upheld by the courts on many occasions and can mean that a gift from a well-intentioned employer is worth less than the giver or the recipient expected.

An alternative to a cash gift may be to give staff a seasonal gift such as a turkey or bottle of wine. In order to ensure that this is not a taxable gift, it is important to confirm that the trivial benefits in kind (BiK) rules apply.

The trivial BiKs apply where the BiK:

  • is not cash or a cash-voucher; and
  • costs £50 or less; and
  • is not provided as part of a salary sacrifice or other contractual arrangement; and
  • is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

Accordingly, gifts that cost under the £50 limit would qualify. It is also possible to provide employees with a gift voucher (not a cash-voucher) where the value is £50 or less. It is important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is no longer a requirement for employers to report these trivial benefits on P11Ds or PAYE Settlement Agreements. However, if the Christmas gifts have a value in excess of £50 or cannot be counted as a trivial benefit then the gift must be reported on form P11D and Class 1A NICs will be payable on the value of the gift.

Planning note

There is an annual BiK cap of £300 that is applied to directors or other office-holders of close companies and to members of their families or households. The £300 annual cap doesn’t apply to other employees.

Please call if you would like our help in formulating your Christmas gifts scheme for 2017, and ensure that the benefits stay with your staff and not HMRC.

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