We can’t believe it either, we’re writing to you about Christmas, but there’s a good reason!
Like most top-notch accountants we like our clients to be ahead of the curve on all things tax related. Whether you like it or not, Christmas is going to be here in all its tinsley glory very, very soon. So, we’ve taken the time to note a few things down that will help you save on tax (as well as some gift ideas from independent businesses, obviously).
If you’re wondering how you can best spread Christmas cheer to your hardworking team in a way that’s both ethical and tax efficient, then here’s how to avoid a festive tax hangover.
Find savvy ways to give
Both you and your staff are deserving of some extra love following a lot of hard work over the past 12 months. While cash bonuses are a common way of giving back, they’re also taxable like any other salary. So, it might be more savvy and tax efficient to do some of the following as well:
- Gifts or Gift Vouchers: who doesn’t love a nice bottle of wine, a hamper of cheese, or a luxury box of chocolates? These sort of gifts (or gift vouchers) can fall under the ‘trivial benefits’ rules and be entirely free of tax as long as they:– cost £50 (including VAT) or less per employee
– are not cash or a cash voucher (meaning it can’t be exchanged for cash)
– are not given for services performed or included in the employee’s contract
It’s vital you adhere to the £50 limit for trivial benefits. If not, the entire benefit is taxed, not just the amount over the limit. You can give employees multiple trivial benefits as long as the rules are met.
- Just so you know, trivial benefits are capped at £300 per tax year for directors, office holders and their families. This means you can give a trivial benefit worth £50 or less six times throughout the year, but you can’t give the full trivial benefit amount of £300 in one gift.
- Work-From-Home Allowance: If your team spent even one day working from home in the past two tax years (20/21 and 21/22) then they are eligible for the Work-From-Home Allowance. This is a tax free allowance of £6 a week or £312 per tax year that you can pay them tax free or the team can claim back directly through HMRC. While the ‘one-day’ aspect is still in place for this tax year (22/23), the rules are stricter. It will be harder to claim this allowance unless your business doesn’t have the facilities employees need for their job on its premises e.g. there’s no office at all. Or, if the nature of the employee’s job requires them to live far enough from your business premises that they can’t travel there daily. Ultimately, it will be more difficult to claim for this tax year but you’re still able to claim for previous years, for example during lockdown. Either way, we recommend checking with your accountant to see that you’re getting the most out of this allowance.
- Host a tax efficient christmas party: However you choose to celebrate, both online and in person parties are subject to the same rules when it comes to tax exemptions, meaning they must:
- be open to all employees
- cost £150 or less per employee (including VAT)
- not include clients OR, if clients attend, the cost is apportioned between them and your employees for future tax purposes
The £150 per head cost is calculated using the total cost of the party divided by the number of people in attendance. You can split this £150 cap across multiple parties, like if you host a virtual Christmas party and an in person summer BBQ. You could also decide to host a mini celebration that costs less than £50 per head and thus falls under the trivial benefit rules, saving the entire £150 per head party budget for a bigger event in the future.
But…don’t leave your employees footing the party bill
Just like with trivial benefits, it’s absolutely vital that you adhere to the £150 limit per employee. If you go over this cap, even by just one pence, then the entire cost of your Christmas party is taxable, not just the excess over £150. If this does become the case, the party would have to be reported on your employee’s P11D as a taxable benefit or – as we recommend – you as the employer can choose to pay the grossed up tax under a PAYE Settlement Agreement (PSA) so your team isn’t unfairly left footing the party bill.
Most importantly, shop local (where you can)!
We know how easy it seems to hop onto the web and get everything crossed off your Christmas list but you know we’re big believers in supporting independent businesses. They form the backbone of your local highstreet and anything you buy from them has been carefully crafted and considered for their consumer (who wouldn’t want that in a gift?). What’s more, anything you spend with them directly pays their bills and allows them to keep doing what they do best.
That said, we get that you might not have all the time in the world to wander around your local shops finding the perfect gift for every employee. With that in mind, one of our favourite ways you can do this is with Scotland Loves Local. You can give your team a (tax deductible!) £50 gift card that they can then use at any of their favourite local businesses, meaning more money stays in the local community and benefits those who need it the most.
For more money saving tips for your small business, check out our other blogs.