Employers who want to provide gifts to employees should be aware that these are taxable.
Cash presents, such as Christmas bonuses or vouchers redeemable for cash, attract Income Tax and National Insurance contributions that must be paid through the PAYE system.
The alternative for employers who want to give, but without a tax charge attached, is to set up a PAYE Settlement Agreement with their tax office.
However, if you work within the rules you can have a tax-free works Christmas party.
The rules apply to a works Christmas party or similar function, providing that all your staff have the opportunity to attend the party. The rules allow a total cost per head of £150 or less and apply to everything provided so be very careful what you lay on, especially if you are also providing transport.
The tax-free limit applies for the whole tax year, so both a summer event and a works Christmas party would qualify as long as the total cost for both is £150 or less per head of persons attending, which would include partners and spouses.
Be careful and keep control of costs. The sum of £150 applies to the total cost per head and it is an exemption not an allowance. So if you exceed the limit, it all becomes taxable; not just the amount by which you exceed the limit.
Spend £149 per head and all is well and the full amount can be claimed in your accounts as a valid expense. Spend £151 per head and not only can you not claim a penny in expense, but the amount becomes taxable on the workers and they will potentially become liable for extra Income Tax and National Insurance contributions as well.
Gifts to customers are not an allowable business expense and are to be treated in the same way as business entertainment.
The Pay Pod can manage your payroll and auto-enrolment allowing you to manage your business.
For further information and friendly advice, contact us today.