Christmas is fast approaching. Nicola Roby, Director at CHW Bolton Small Business accountants highlights a few things businesses may want to consider whilst you are putting the tree and tinsel up!
This can be not only be an enjoyable way of rewarding employees, but also tax-efficient. According to HMRC rules, employees and their partners do not pay tax and national insurance on any parties they attend so long as the cost to the business is less than £150 per head.
The cost of the function is calculated including VAT and also any extras such as transport or overnight accommodation. The total cost of the function is then divided by the total number of people attending, including non-employees in order to arrive at the cost per head.
If the cost per head of the Christmas party is greater than £150, then the whole cost will be subject to tax and NI. As an example, if the cost of the party, transport and accommodation transport or overnight accommodation averages out to £200 per head, then the employee is taxed on £200. If their partner also attended, then they be taxed on a benefit of £400.
Another option which influences how tax and NI is applied to events are if an employer provides more than one party per year. For example, if 3 parties were held over the course of the year costing £110, £40 and £75 per head respectively, then tax and NI would be levied on the £75 party only because the £110 and £40 parties would be covered by the £150 annual exemption.
As always, with tax matters, you should consult your accountant for advice before you make any decisions.
Bonuses or gifts for employees
Many employers reward staff at Christmas by way of a cash bonus or gift. However, where employers do so, there are certain tax, National Insurance and reporting obligations. These depend on whether you give a cash bonus or a gift and in the case of a gift whether it could be resold for cash.
Any cash you give to an employee as a Christmas bonus counts as earnings, so you will need to add the value to your employee’s other earnings and deduct and pay PAYE and Class 1 National Insurance through your payroll.
If you choose to give a gift to your employees at Christmas, they can often be classed as a ‘trivial benefit’. Trivial benefits do not attract tax or National Insurance and HMRC don’t need to be informed. To be counted as a trivial benefit, the gift must have cost £50 or less to provide, it cannot be a cash voucher and mustn’t be a reward for performance or in the terms of the employee’s contract. A box of chocolates or a turkey for example.
If the benefit can’t be classed as trivial then the value must be worked out, reported on form P11D and Class 1 National Insurance paid on the calculated value.
Where the gift has no resale value, the value is the cost to you, the employer. If the gift does have a resale value, then the value is the higher of the cost to the employer or the resale value.
Charitable donations as an individual
A lot of people whether they are business owners or employees do tit-for-tat giving at Christmas. The usual result is unwanted tat. An alternative for individuals is to make a gift to charity.
UK tax payers making charitable donations have the option to pay via Gift Aid. This allows charities to reclaim the tax from HMRC on donations, meaning any donation is increased.
The charity requires your name, address and a declaration that you’re a UK taxpayer and this can be done by telephone or in writing.
Charities reclaim the tax at the basic 20% rate which, due to the way the numbers work, means they get 25% more than you donate (so if you give £10 the charity gets £12.50).
A higher-rate (40%) or additional-rate (45%) taxpayer is able to claim tax relief on the difference between the basic-rate and higher-rates (for example, 20% or 25%). For higher-rate taxpayers on £10 that’s £2.50 and for additional-rate taxpayers it’s a further £3.12.
Higher and additional-rate taxpayers can claim the extra tax relief when filling out their tax self-assessment form; they could opt to donate this extra tax to charity.
A tax payer may treat a Gift Aid donation before January 31 as being made in the previous tax year provided the total donations do not exceed the total chargeable income and gains. The claim must be made on or before the date the Tax Return for the previous year is submitted and no later than January 31 following the end of the tax year.
For advice on any this or any other issue relating to small business accounting contact Nicola Roby, Director at CHW Small Business Accounting on 01204 534031 or via email at email@example.com.
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