Whilst the traditional office Christmas party is an unlikely occurrence this year, there is still a way to provide some Christmas cheer in a tax efficient manner – by making use of the “trivial benefits” exemption.
Provided the cost is not over £50 including VAT, it is not cash or a cash voucher and it is not a reward for work or performance, and is not in their terms of employment, then no benefit in kind charge arises – but beware – if you spend just £1 more, the whole benefit becomes taxable – not just the excess £1. So, you can help pay for their Christmas by providing them with supermarket gift vouchers (or bottles of wine etc). A £50 voucher is the equivalent of £73.53 before tax and NI for a basic rate taxpayer.
While the general rule is that there is no limit on the number of individual trivial gifts that can be given to an employee (as opposed to a director) in any one year – provided each gift individually qualifies for relief – there are rules which prevent an employer trying to divide a larger gift into several smaller ones. While providing a gift card of £10 would initially fall within the trivial benefit rules, topping up the same card with £10 more than four more times in the tax year will take the total of the benefit over the £50 limit. In that case, the whole series of gifts will be considered a single benefit which then fails to meet the trivial benefit conditions so both the original gift and the top-ups will be taxable.
There is an additional annual cap of £300 on the aggregate value of trivial benefits that can be paid to directors or office holders of close companies (companies owned and controlled by five or fewer participators, as is the case in many family companies) or employees related to them in any one tax year.
