With the added pressures of the cost-of-living crisis still upon us, finding ways to reward our teams are even more important and spreading that Festive cheer can make such a difference.
You may be thinking of a Festive party, bringing everyone together or what about a gift to say thank you for all of their hard work. Whilst both are lovely, as an employer you must take into account the tax and national insurance implications before proceeding. Otherwise this could be a reward that costs more than you first thought for both you and your employee.
The rules on staff entertaining and gifts, if adhered to means that you could avoid the need for reporting to HM Revenue & Customs (HMRC) and preparing forms P11d, so here we go through those rules to keep you from falling foul.
Senior Healthcare Manager, Hayley Benn highlights the key areas in this short explainer video
HMRC actually gave us a treat of our own, when the concept of Trivial benefits was clarified.
What are Trivial Benefits?
A benefit is deemed as Trivial and therefore exempt from tax if:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
So, using the Trivial benefits exemption is a good way of rewarding your employees, for example with a bouquet of flowers, store voucher, non-cash voucher or a hamper.
If however the above is breached in any way, then the benefit becomes taxable and reportable to HMRC.
Festive parties and get togethers
There’s nothing greater at team building that a little time to relax outside of the office with your colleagues and that’s why parties and get togethers are so important. Along with that, they can also have the added benefit of increasing mental wellbeing.
So, for a party, either in person or possibly virtually if you are still enjoying the world that lockdown has exposed us to, it is important to understand the conditions to make the event exempt from reporting as a benefit in kind.
These conditions are:
- It must be open to all your employees
- Be annual, such as a Festive party or Summer Ball/BBQ
- Cost £150 or less per person
These may seem like simple conditions, but we need to look at each of them in turn:
Open to all employees
This may seem straight forward but what if you have multiple surgeries or separate departments? As long as every member of staff is able to go to one of the events or parties then this will still fall within the exemption.
Must be annual
This condition is the clearest of them all and is self-explanatory.
Cost £150 or less per person
On the surface this also seems clear, but we must consider how the cost is calculated, does it include VAT, is it just the main event or do other things have to be added in such as transport for example.
Well, yes and yes is the answer, VAT should be included and associated costs such as transport and accommodation should
be added to the overall cost. This total amount is then dividend by the number of people attending the party or event to give a cost per person.
If this cost is under £150 per person the exemption is applicable and not taxable benefit has been created.
On the other hand if it exceeds £150 per person then a taxable benefit arises on the total amount.
The £150 per person is an annual limit and therefore if you were to have two events in the year the overall cost of both events
must not exceed this limit. Where it does then one event may be exempt and the other may create a taxable benefit.
For example:
- Festive party £80 per head
- Summer BBQ £90 per head
In the above example we would set the exemption against the summer BBQ and the festive party would become taxable, as this is most tax efficient.
What does it mean if there is a taxable benefit?
A taxable benefit can either be declared on form P11d, and results in the employee having tax and national insurance
consequences, as well as the practice having to pay national insurance.
Alternatively, a PAYE settlement agreement could be set up by the practice. If you do decide to use a settlement agreement be aware that, these are not cheap.
A PAYE Settlement agreement is where the practice agrees to pay the tax and national insurance on the grossed-up benefit.
They must be applied for before 6 July after the end of the tax year in which the benefit arose.
Salary sacrifice arrangements
An additional point, if you provide entertainment or trivial benefits as part of a salary sacrifice arrangement, they will not be exempt, and you will need to report them on the employee’s form P11d.
Get in touch
For any further help or guidance with any issue around Staff Christmas Parties and Trivial Benefits then please contact your local MHA healthcare team by using our online enquiry form
