Treating your employees over the Christmas holidays (or at any time, in fact!) is a tried and trusted approach to building a strong relationship with your team.
But did you know you might be breaking PAYE rules by doing so?
We want you to enjoy the holidays just as much as your team, so here’s some timely advice for staying on the right side of the tax man this Christmas.
Getting gifts right
Under PAYE rules, there are two types of gifts: exempt trivial benefits and non-exempt benefits in kind.
Trivial benefits are items of value given to an employee which do not count towards taxable income or National Insurance Contributions (NICs).
To qualify, the gift must meet ALL of the following conditions:
- The gift is below the value of £50
- It isn’t cash or a cash voucher
- It isn’t a performance-linked reward
- It isn’t in the terms of the employee’s contract
- For example, a trivial benefit in kind may include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.
- If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.
An easy-to-understand example
If you’re struggling to get your head around what is and isn’t a trivial gift, here’s a common workplace example.
Your company has a season ticket for the local football team. Each admission has an average value of £45.
If you were to allow an employee to use the season ticket once in any tax year, the gift would qualify as a trivial benefit (providing the other conditions are met).
However, if the employee was allowed to go twice or more a year, the total value of the benefit would exceed the £50 threshold and would no longer count as a trivial benefit.
What about incidental expenses?
Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”. These might include buying newspapers, paying for laundry or using the hotel telephone.
Providing the value of the expenses do not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to the tax man.
For further reading on tax exemption for benefits in kind, click here.