Staff will be taxed when 'entertained', i.e. provided with food and drink outside of the normal course of business. The value of the entertainment they have received will be reported on the P11D form at year end. The employees will then pay income tax on the value received (via an adjustment in their tax code) and the employer will pay national insurance on the total value of the benefit.
When entertainment is within the 'trivial benefit' thresholds described below they are not reportable or taxable.
Gifts to Employees
Christmas gifts paid in cash to employees will normally be taxable. The same treatment also extends to vouchers that can be spent in either one or a number of different shops of the employee's choice (unless they fall under the trivial benefits rules described below). If employees are given a seasonal present, such as a turkey, an 'ordinary' bottle of wine or a box of chocolates, as long as the cost is reasonable, and falls within the trivial benefits rules below, HM Revenue & Customs (HMRC) won't seek to tax it.
The employer can provide a trivial benefit to any employee without having to justify his reason, on as many days in a tax year as he wishes, although there is a cap on the value of benefits provided to company directors and their families.
If the benefit meets the following three conditions it can be paid with no tax or NIC for employee or employer, the business can claim a tax deduction for the cost. The benefit must:
a) cost no more than £50;
b) not be a reward for services or in any way contractual; and
c) not be cash or voucher which can be exchanged for cash (which includes most gift cards).
A £50 amazon gift voucher is usually a suitable trivial benefit because it cannot be exchanged for cash. However, a £50 John Lewis voucher would not be allowed, because in theory the employee could purchase a 1p sweet, and receive £49.99 as change in case, breaking rule c) of above.
An employer can (in theory) provide a £50 gift voucher to every employee on every working day of the year, but that is likely to be seen as a reward for services, so it would break condition b) above.
Directors and office-holders of companies are only permitted to receive up to £300 of trivial benefits per tax year. That total includes the value of trivial benefits provided to the director's family members. This allows the company to buy six £50 gift vouchers to give to the director/shareholder at intervals (they must be separate gifts), who is then free to spend or distribute those gift vouchers as he wishes.
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
Employer B provides each of its 100 employees with a turkey at Christmas and the total bill comes to £4,500. There are a variety of sizes. Because the employer has made a bulk order, the turkeys have not been priced up individually but would cost in the region of £40 to £60 each. Employees are able to choose which bird they have. Rather than undertake a detailed analysis of the individual benefits, you should accept that the cost per head is £45, reflecting an average amount of £4,500/100. The benefit can be covered by the exemption since the cost for each employee does not exceed the trivial benefit financial limit.
Employer C provides each member of its 25 strong work-force with a bottle of wine at Christmas. The total bill comes to £1,000. This reflects 20 bottles of wine that cost £15 per bottle provided to each of its employees and 5 bottles of wine provided to each of its directors that cost £140 per bottle. In this case it is not impracticable to determine the cost of the individual benefit and the actual cost per item should be applied in determining whether the monetary limit has been exceeded for each employee and director. The benefit of the £15 bottles of wine can be covered by the exemption since the cost does not exceed the trivial benefit financial limit but the benefit of the £140 bottles of wine provided to the directors cannot be covered by the exemption.
Employer D gives an employee a gift card, which costs the employer £10 to provide. The employer tops up the employee’s gift card on 7 further occasions, at a cost of £10 for each occasion. Although the benefit to the employee is topped up on separate occasions there is a single benefit of the provision of a gift card. The total cost to the employer for providing the benefit over the period of employment is £80 and therefore this benefit is not exempt as a trivial benefit.
Employer E is a wine producer and without obligation provides each of its employees with an allowance of wine from the staff shop every month. This started at the end of January 2017 and costs the employer £10 per employee each month. During the 2016/17 tax year the total cost to the employer of the benefit is £30 per employee and so the trivial benefits exemption can apply for that tax year. After a poor harvest during 2017/18, Employer E decides to stop the allowance after October. The total cost of the benefit for 2017/18 is £70 per employee. The cost condition is not satisfied so the trivial benefits exemption does not apply for 2017/18 and the benefit must be declared in the normal way for that year.
Employee F is allowed to charge a privately owned electric car at work and does so. The electricity used in each charge costs between £2 and £5, depending on the level of charge required. The employer allows the employee to charge their car most days when they come to work. There is a benefit of the provision of electric charging. As the opportunity to charge the electric car is open ended the total cost of the benefit is likely to exceed the trivial benefit limit so the benefit is not exempt. Provision of the charging facilities might also be part of the employee’s employment terms and conditions which would also prevent the exemption from applying.