As we had hoped to inspire a return to a normal Christmas environment this year, the two common themes of tax and Christmas (well maybe not that common) spring to mind.
As employers attempt to be a bit more inventive with how they reward staff at this time of year, especially as we find ourselves potentially leaning more towards online interactions for the second year running, here is a quick rundown of what the income tax and PAYE implications and reporting requirements are for employers in the 2021/2022 tax year.
What’s the position?
Employers providing a Christmas party (in person or virtually) for employees will not give rise to a taxable benefit for the employees as long as the following conditions are satisfied:
Generally, this should mean that no income tax or PAYE charge should arise on the employees.
The £150 per head
It is worth drawing out that the £150 per head threshold includes all costs associated with throwing the party e.g. transport, food, drinks and accommodation, and is per attendee and not exclusively per employee.
Therefore, for these purposes, employees are allowed to bring guests which would reduce the cost per head but, this is only likely to appeal if employers are feeling particularly generous and want to share the festive cheer with non-employees.
Pitfalls and Reporting requirements
That said, if the employer throws a particularly extravagant party which costs, £200 per head, the taxable benefit for each employee will be the full £200 and not just the excess over £150 – this is an all or nothing benefit.
In such a case, the income tax and PAYE liability can be collected via:
What’s the position?
The tax position will depend upon the nature of the gift that employers (and even third parties) provide to their employees. Focussing on three categories, as follows, the position will be:
Thinking ahead – Christmas 2022
It might be too early to be planning for Christmas 2022 but, with the introduction of the new Health and Social Care Levy from April 2022, Christmas gifts made next year which are subject to income tax and PAYE will become a little bit more expensive for employers as the additional 1.25% rate applies on the value of the benefits provided.
How can we help?
As always, planning ahead and understanding the tax implications and reporting requirements before acting ensures employers can fully understand the consequences of offering such events or gifts.
We would be happy to discuss the above in more detail to maximise the tax efficiency for employers and employees or assist with any annual filing requirements, such as payroll, p11d’s or PSA, which arise from such gifts.
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