By Julie Hamilton, Tax Manager
2024 has been a particularly busy year. The economic index for Northern Ireland has increased throughout the year and every sector has played its part. All those involved are deserving of some Christmas cheer, but employers throwing staff parties or handing out staff bonuses need to ensure that they keep the tax implications in mind during the season of giving.
Trivial benefits such as non-cash vouchers or hampers are exempt from income tax if they do not exceed £50 including VAT, or if they are not distributed in cash or provided in recognition of past or future services and are not part of any contractual agreement. Where the employer is a ‘close’ company, and the benefit is provided to a Director, the total value of trivial benefits they can receive in a tax year cannot exceed £300 including VAT.
Any employer looking to reward staff with a straightforward Christmas bonus should remember that the bonus will be subject to tax and national insurance, meaning employees will be financially impacted. A Christmas party, on the other hand, is a tax-free benefit, save for three specific requirements. The event or function must be offered to all, not just Directors, must be an annual event, and must cost less than £150 per person including VAT.
This strict limit of £150 must cover all costs related to the function for each individual, but if met means the event will be an allowable expense for which you can reclaim input VAT incurred on the costs. If a company holds more than one annual event in the year, all are exempt so long as they are open to all staff and combined costs do for the year do not exceed £150 per person.
Gifts to employees are tax deductible for your business; however, gifts provided to third parties are not an allowable expense, unless the cost does not exceed £50 per person, per period, bears the name or logo of the business and does not include food, drink or tobacco.
If overlooked or managed poorly, employers run the risk of landing their team members with a tax bill for their own Christmas party, which would surely dampen the yuletide spirit. To avoid this, a PAYE Settlement Agreement (PSA) can be arranged with HMRC, allowing an employer to pay the tax and national insurance on the employee’s behalf.
Recovering from the Christmas period can be difficult enough for everyone involved; the last thing employees or employers need is a tax hangover to deal with. By staying on top of their tax obligations, employers can ensure that this remains a season of good cheer.
To discuss this in more detail, please contact Tax Manager Julie Hamilton at E: juliehamilton@bakertillymm.co.uk or Tel: 028 9032 3466.