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A little indulgence can be good

by
01 December 2014, at 12:00am

Adam Bernstein is in a festive mood and discusses what practices can and should or should not do – and the need to take employment law and tax considerations into account when giving thanks.

CHRISTMAS is a time of goodwill to all and a time of giving. Understandably, many businesses consider Christmas to be a great time to offer thanks to staff, clients and suppliers for their support over the year.

However, getting the message over properly isn’t as easy as some might think.

Thanking staff

For most businesses, the staff party is the best way to reward staff and even though the event generally happens off site and after hours, employment law still has something to say on the subject.

Employers can find themselves in hot water when staff overindulge. As countless lawyers and HR managers will tell you, alcohol can be the root cause of many a tribunal claim.

Wise employers limit the amount of alcohol on tap and provide that there should be non-alcoholic drinks freely available. If there’s an open bar, they also give staff vouchers for a set number of drinks.

It follows that employers are advised to tell employees what is acceptable at the event and what the penalties will be if they overstep the mark.

Because religious beliefs may differ, it’s important to think about how the event can be as inclusive as possible. Some may not drink alcohol and others may have restricted diets. Being as accommodating as possible can avoid complaints and ensuring that any entertainment won’t offend is another sensible move.

It’s worth remembering that staff can be offended in ways other than food, drink and entertainment, so those wanting to run a Secret Santa need to manage the process. The problem is that because there’s anonymity in the giving, staff may forget that what one might see as funny might be offensive to another. 

A polite briefing beforehand will help everyone understand what is acceptable and what is not.

Hopefully, common sense will prevail so that the party will be held at the end of the working week. Some will consume more than they can cope with, and with alcohol potentially staying in the body until the following day you’ll not want staff driving into work or operating equipment while under the influence.

Equally they’ll not perform well if hungover. If the party is midweek (or the practice is open the next day) it’s also worth reminding staff that they’ll still be required in the following day.

Thanking clients and suppliers

Have you ever stopped to work out what a customer is worth to you and how much effort you have to expend to find more? Thinking about this in depth will help you realise that a few well-placed (and not necessarily expensive) gifts to loyal clients could be a wise investment.

Clearly, there’s nothing worse than receiving something that is regarded as “junk” or “clutter”, so if you are going to give, aim to make the gifts personal. They’ll be appreciated and you’ll be remembered. With a discreet brand on it they’ll also avoid tax if the gift is under £50 in value (see HMRC tax rules below).

Alternatively, you could give a sample product or service that the client has expressed interest in, but not yet bought. You may want to give gifts that bear no logos and hope that you’re remembered and that the recipient pays the tax – some may not like keeping or having items with logos on as it devalues the item. Do add a personally written note with each gift; it will say much more than the gift on its own.

Don’t lose sight of the fact that businesses often have policies in place that mean that gifts given to staff have to be declared, and in certain circumstances – based on the gift or value – refused.

For some clients you could consider sending a personalised Christmas card. The likes of Moonpig make this easy. Bland and standard cards tend to go straight in the bin while personalised cards are more likely to be kept. There are plenty of card vendors on Google and they should be able to help with discounts on bulk mailing if the addresses are pre-sorted.

Whatever you do, ensure that your gift and card are delivered before 20th December – earlier if you know that the recipient will be away. That way it will be opened in the spirit that it was intended. 

HMRC tax rules

It wouldn’t be Christmas if HMRC didn’t have a number of rules for gathering tax at this time of year.

So looking first at the giving of gifts, HMRC considers some gifts under £50 – a turkey, wine or chocolates, for example – as “trivial” and therefore tax-free. However, vouchers or anything that can be turned into money are outside of this exemption and will always be taxable.

“Trivial” to HMRC relates to the cost of the item in the recipient’s eyes and not in terms of an employer with a large number of employees where the total cost of providing a gift to each employee may be considerable. 

Interestingly, HMRC also classifies seasonal immunisation as a seasonal gift and therefore as trivial. Other forms of immunisation are not exempted. 

Moving on to parties, directors and employees can be charged tax on their share of an event unless it’s an annual party (for example, a Christmas party) or similar annual function (say a summer barbecue), provided for employees and that it’s available to employees generally or available to employees generally at one location, where the employer has more than one location.

If there is more than one annual event for employees there will be no tax if the cost of the event per head does not exceed £150 in total. If any event (or events over the tax year) breaks this limit, then tax will need to be paid.

It’s worth noting that HMRC considers that £150 is an all-in total – that it includes VAT, transport and accommodation. To work out if the limit per head has been breached means dividing the total cost by the number of attendees including non-employees. The £150 is not an allowance, it’s an exemption.

HMRC gives two examples to illustrate the point.

Example one

A company holds an annual Christmas party for all staff including directors. The average cost per employee is £50. This eveWnt is exempt. The company also holds an annual party at Christmas for its directors at which the cost per head is £75. This function is not open to staff other than directors. It’s not exempt from tax because it is not available to staff generally.

Example two

A company holds two annual events open to all employees in the tax year. The total cost of the rst, including transport and accommodation provided for certain guests, was £10,000, including VAT. The total number of persons attending was 100 and the cost per head was therefore £100. The second cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80.

The total cost per head for both functions was £180 so both events cannot qualify for exemption. But as the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own – the business can make the choice on which to claim.

Wrapping up

Christmas is a great time to relax and thank those who have helped and been loyal to the business. With a little planning and thought, it need not be an expensive mistake or one that ends in tears.