QUESTION: My business has performed well this year and I want to buy gifts for my employees for Christmas as a thank you for their hard work and commitment. I don’t want my employees to pay tax or national insurance on these gifts – or the hassle of any extra administration. Can I do this tax efficiently?
ANSWER: From April last year 'trivial' benefits paid to staff costing less than £50 are exempt from tax. If you buy your employees a seasonal gift such as a turkey, a bottle of wine or a box of chocolates which falls within the above criteria, HM Revenue & Customs will not seek to tax it and there are no additional reporting requirements. However if the value of the gift is more than the £50 stated above, it will be taxable on the employee.
If your gifts are more lavish than such examples above – say a hamper or a case of wine – then the cash equivalent must be taxed via payroll, form P11D or Pay As You Earn Settlement Agreement (PSA).
Cash payments to employees will always be taxable at source under Pay as You Earn and are subject to Income Tax and National Insurance. 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. The employee is required to pay tax on the full value of the voucher.
A mobile phone will not be subject to any tax or national insurance on the individual as it is not classed as a benefit-in-kind and it is deductible from the total profits of your business when calculating taxable profits. This exemption from tax covers only one mobile phone for each employee, but the phone can be used for both business and private calls provided the contract is between the company and the phone provider.
The cost of employee entertaining, as long as it’s not incidental to the entertainment of others, is allowed to be deducted for business tax purposes. Any business can have an annual tax free social event for its entire staff and their partners.
If the cost per head does not exceed £150, staff will not be taxed and the business gets full tax relief on the expense. It is important to note that if the cost per head does exceed £150 than all the costs, not just those over £150, are taxable as a benefit-in-kind.
If you have any long serving employees who have been with the business for more than 20 years, you can recognise their loyalty with a tax free bonus worth up to £50 for every year of service. The gift must not be cash or vouchers but could be a holiday or television or any other tangible object. You can make such a gift to an employee every 10 years but not more frequently.
You can also help the environment by offering your employees free bicycles and safety equipment. Provided the bike and equipment remains company property, is available to all employees, and is used mainly for getting the employee to work then there is no tax charge on your employee and the cost should be fully tax deductible for the business.
:: Paddy Harty (p.harty@pkffpm.com) is director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
