REWARD
‘Tis the season to be giving!
GemmaMullisMCIPPdipp, policy and research officer at the CIPP, makes organisations aware of the implications of providing staffwith gifts at Christmas
T raditionally, Christmas is a time for giving, and employers also get on board with that. It is typically the period in which employers provide their employees with gifts to thank them and to acknowledge all their hard work over the course of the year. What employers do not want to do, however, is to cause tax implications for their employees by providing them with gifts. This article will explore the most popular gifts given to employees over the festive period and the potential impacts on pay as you earn (PAYE), which are dictated by the manner in which those gifts are given. Gift vouchers Some employers choose to give their employees non-cash vouchers. A non- cash voucher is a voucher which cannot be exchanged for cash, but which an employee can use to purchase whatever they like, for example, a gift card. In all circumstances, this will attract a tax liability and, only if an employer has a PAYE settlement agreement (PSA) in place, will this not attract a tax liability for the employee. Class 1 National Insurance contributions (NICs) will also be due on most non-cash vouchers. A list containing those that are not subject to class 1 NICs can be viewed here: https://bit.ly/3n81l8J. They can also be captured on a PSA if one is in place. If there is not a PSA in place, the value of the voucher must be reported on a P11D for tax purposes and added to the employee’s NICable pay via PAYE to collect the class 1 NICs due. Christmas hampers Turkeys and hampers full of Christmas treats are popular gifts for employers to give to employees. If all the following rules apply, then this could be classed as a trivial benefit: ● it cost no more than £50 to provide ● it is not cash or a cash voucher ● it is not a reward for an employee’s work or performance
● it is not stipulated in the terms of employee contracts. If the gifts cannot be classed as trivial benefits, then, like vouchers, if an employer has a PSA in place that includes goods, the tax can be covered by this. If there is no PSA in place, however, the value of the goods needs to be reported on a P11D for tax purposes and class 1A NICs reported via a P11Db. Christmas party Annually, employers can provide an event that costs no more than £150 on average per head in attendance without it attracting tax or NICs With many employees heading back to their places of work and events returning to normal this year, it is probable that the traditional face-to-face Christmas party will return. With a vengeance! Annually, employers can provide an event that costs no more than £150 on average per head in attendance without it attracting tax or NICs. In 2020, an exemption was added so that employers could include the cost of a virtual party, which could involve supplying employees with refreshments and entertainment, for example, if all other rules were adhered to. Her Majesty’s Revenue and Customs has confirmed that this is a permanent extension and that virtual parties can be included going forward. There are some stringent rules to be observed for the exemption to apply. They are that: ● the event must be open to all employees. If an employer has multiple locations and runs events in multiple
locations, this can still be included, on the proviso that an employee can attend at least one event ● it must be an annual event, such as a Christmas party or a summer barbecue. Employers can have both, however, the combined cost of both events cannot exceed £150 per employee in attendance. For example, if the summer barbecue costs £75 per employee in attendance, then the Christmas party cannot exceed £75 per employee in attendance ● it cannot cost more than £150 per employee in attendance – this is a crucial point. An employer cannot simply multiply their headcount by £150. They must multiply the number of those in attendance by £150 to gauge the cost of the event. If an employee doesn’t wish to attend, then their allocation of £150 cannot be used when calculating the cost of the event. If two or more events are being run within the year, it is important to keep track of the £150 per employee limit, as if the cost exceeds this, there will be tax and class 1A NICs implications. For example – a summer barbecue is hosted that costs £100 per employee in attendance. The Christmas party then costs £80 per employee. Because the Christmas party exceeds the £50 available, the full cost of the event will attract a tax liability. The charges that would apply are illustrated as follows: ● if they attended both events, a benefit charge would apply to the Christmas party (£80) ● if they attended only the first event, no benefit charge would apply ● if they attended only the second event, a benefit charge would apply to the Christmas party (£80). If an employer has a PSA in place for events, then the associated tax cost can be covered by this, and the class 1A reported on a P11Db. The £150 exemption should not be seen as an allowance, meaning that it cannot just be offset against costs with only the excess balance being reportable. n
| Professional in Payroll, Pensions and Reward | December 2021 – January 2022 | Issue 76 22
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