Before you sign off for the holidays and brace yourself for year end, just make sure you’ve got all your ducks in a row (or should that be angels?) in respect to holiday gifts and parties, particularly in light of HMRC’s comments on trivial benefits in the December Employer Bulletin.
The annual party exemption allows employers to provide an annual event (at any time during the year), or more than one event if in aggregate the two events don’t add up to more than £150 per head, including VAT. When assessing the costs you must consider all the end to end costs of the event so that would include:
- Travel to the event
- Raffle prizes (unless donated)
The total costs are divided by all the attendees to reach the cost per head. This can include employees, their family members, suppliers and consultants – not just employees. HMRC will though expect you to have some proof of the number of attendees, either the number of covers you paid for, replies to the invitation by email or even a register taken on the night.
In April 2016 new legislation was introduced to amend ITEPA 2003 to exempt from tax as a benefit in kind, trivial benefits provided by employers to employees as long as certain conditions are met. These conditions are:
- The cost of the benefit must not be over £50 including VAT
- The benefit must not be in the form of cash or a cash voucher
- The benefit must not be provided as part of a salary sacrifice arrangement or any other contractual obligation;
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
This has been a welcome easement for employers as it provides clarity that gifts given for personal or seasonal reasons will automatically be exempt from tax and NIC if they are £50 or less including VAT. A cash voucher means a cheque, so it’s also OK to provide gift vouchers (as these are exchangeable for goods and services, not cash) and the fact that the exemption is £50 per occasion means you could provide £50 at Christmas and £50 at New Year!
The only fly in the ointment is that in the December Employer Bulletin, HMRC have suddenly expanded what they see as a ‘contractual obligation’ to include ‘legitimate expectation’. They are saying that providing something regularly means it has become contractual, as employees have the right to expect that it is provided. This is not what the legislation says, and I think that most tax advisers would take issue with this interpretation.
And get pay day right too!
Finally, whilst everyone is enjoying festive parties and gifts, of course payroll is under even more pressure than normal to bring forward pay day in many businesses. If that’s your situation, do make sure you’re aware of the RTI reporting change that is now in place for every December pay run.
HMRC confirmed in the October Employer Bulletin that the change they made in 2018 is now permanent. This means that if you bring pay day forward in December you must ensure that you can amend field 43 in your Full Payment Submission (FPS) to the contractual pay day, rather than the actual day that you’ve made payment. So, for example, if pay day is normally the last working day of the month in December (i.e. 31st December) and you decide to pay on 20th instead, the FPS must show the 31st and you can also send the FPS on, or before, midnight on 31st rather than the 20th.
The reason for this change is the impact that bringing pay days forwards can have on Universal Credit recipients. HMRC use the date in field 43 to decide whether to send earnings data to DWP that influences how much Universal Credit someone receives. Any date on an FPS that falls within the individual’s Universal Credit award period (and they are personalised to each individual) means those earnings are sent to DWP as long as the FPS is received by 9pm. Any FPSs received after 9pm are sent the next day, so you can miss the deadline if the FPS is received late at night on the last day of the award period. DWP have no automated facility to move earnings around, so if two amounts are received in one award period the individual will lose Universal Credit and may even cease to qualify the next month when they appear to have no earnings.
You don’t want to undo all the goodwill you’ve achieved with your end-of-year party and gifts when employees find their household income has dropped just because you didn't follow the RTI reporting easement. Of course, you’ll always get people asking for salary advances in January as they hadn't budgeted to make their money stretch from mid-December to 31st January, but payroll can't do everything, and shortening January is not in our power!
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