Tax-Free Christmas Parties and Gifts- Seasonal Gifts

An employer may wish to give a seasonal gift to an employee. Typical seasonal offerings are Christmas Hampers, wine or champagne, chocolates or a turkey, From a tax perspective, modest gifts can be given tax-free if they fall within the trivial benefits exemption. This is contained in ITEPA 2003, s. 323A. As with the exemption for annual parties and functions, the availability of the exemption for trivial benefits depends on the conditions being met.

A benefit is only a trivial benefit for these purposes if:

• The cost of providing the benefit does not exceed £50.
• The benefit is not cash or a cash voucher.
• The employee is not contractually entitled to the benefit; and
• The benefit is not provided in recognition of services performed or to be performed by the employee.

If the client’s company is a close company, an annual cap of £300 per tax year limits the trivial benefits that can be provided tax free to directors and office holders and their families. Otherwise, there is no limit on the number of trivial benefits an employee can enjoy tax free in the tax year.

Employers can make use of the exemption to give employees a moderate Christmas gift, such as a bottle of wine or a box of biscuits. Lavish gifts breaching the £50 limit will fall outside the exemption and their provision will trigger a tax charge under the benefit in kind rules.

Determining the cost of the gift will normally be straightforward. However, where a benefit is provided to multiple employees and it is difficult to ascertain the individual cost, the average cost can be used instead.

Care should be taken where a voucher or an app is used to provide the gift and this can be used on more than one occasion. Where this is the case, the cost is the total cost of all benefits provided using the app or voucher in the tax year, rather than the cost of each individual benefit. If the annual cost is more than £50, the exemption will not apply, even if the individual cost each time the app or voucher is used is £50 or less.

As with Christmas parties, where a tax charge arises in respect of a gift under the benefit in kind rules, the employer can opt to use a PSA to meet the liability on the employee’s behalf.