Many employers like to give Christmas gifts to their employees to reward them for their effort throughout the year. Unfortunately HM Revenue and Customs will generally view such gifts as taxable in the hands of the employee.
The only instance where a gift is not taxable is if the Tax Inspector agrees that the benefit is of a trivial amount. HMRC’s manuals point out that there is no set monthly limit below which a benefit is deemed to be trivial. The manuals give examples of the sorts of items which they will not seek to tax. Examples given include “seasonal gifts such as a turkey, an ordinary bottle of wine or a box of chocolates”.
In deciding whether the gift is a trivial benefit or not it is necessary to consider the individual employee rather than the total cost. For example an employer with a large workforce could spend a lot of money giving small gifts to each employee. This would not alter the fact that the benefit might be trivial.
If the gift extends beyond one of the small items mentioned above, for example a case of wine or a Christmas hamper, then the Inspector will consider the cost and contents of the gift in deciding whether to agree the benefit is trivial.
You should also be aware that gifts of cash or items which can be readily converted into cash such as retail vouchers will not be considered a trivial benefit irrespective of their value.
If you want to give larger gifts to your employees but don’t want them to suffer a tax charge you can enter into a PAYE Settlement Agreement with HMRC to pay the tax on the employees behalf.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
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