As Christmas is just around the corner I would like to reward my employees for their hard work this year by some means. I do not want my employees to have to pay any extra tax due to this and wondered what the tax position of a party, bonus or gift would be for my staff?
If the Christmas party is an annual event and available to all of your employees and the cost per head is no more than £150 including VAT then no tax would be payable by the employee. However, if it is a lavish affair and the cost per head is greater than this, then any director or employee earning £8,500 or more per annum would be taxed on the full amount (this would be declared on Form P11D). The cost includes VAT and, if provided, the cost of transport and any overnight accommodation. To find the cost per head simply divide the total cost of the function by the total number of people who attended regardless of whether they were all employees or not. Care would need to be taken where there is more than one party each year, for example there is also an annual summer ball. As long as the combined cost of however many annual events there are, is less than £150 per head then no tax is payable by the employee but if the total is more then you can apply the exemption to whichever combination of events best 'use up' the £150 threshold. For example, if there are three events costing £80, £60 and £30 and an employee attends all three then you would use the exemption to cover the first two events resulting in the £30 event being declared (in full) on the employee.
Where a cash bonus is given to the employee then this is taxed in the normal way via PAYE, as would be a present of a gift voucher.
If a gift to an employee is considered to be trivial (e.g. a bottle of wine or a turkey), then no tax is payable by the recipient. Otherwise, the gift would need to be declared on Form P11D for directors or employees earning £8,500 or more. The value of the gift would be the amount you paid for it.
Remember though that the £8,500 threshold is not purely salary alone but also includes the value of any expenses and benefits they are in receipt of. This is pro-rated where employed for less than a full year.
Further assistance is available via our specialist tax advisors on 01455 852550.