As another year draws to a close and the Christmas work party season begins, we thought it was an apt time to cover the most popular ways that employers can give back to their valued employees in the most tax-efficient way possible.  We are as ever mindful that money is scarce in the public/third sectors and opportunities to spread some Christmas cheer are limited. However, if your organisation is in a position to do so, we have listed our top five tax-free treats that you may be able to offer:-

Tax-Free Gift No. 1 – The Christmas party 

If you’re thinking that the work Christmas party has been subtly and steadily declined in stature, then you can blame that on inflation.  Unfortunately, the £150 threshold has not risen since 2003, and is therefore worth around half of what it was in 2003.  Employers can provide a Christmas party for employees up to the value of £150 per attendee without incurring a taxable benefit in kind; however, watch out for The Grinch at HMRC who will take away the tax exemption entirely if the threshold is breached.  The party must be available for everyone to attend, and the cost will include all associated costs such as transportation and accommodation as well as the function costs, and don’t forget this is the VAT-inclusive amount. 

Tax-Free Gift No. 2 – Trivial Benefits 

The giving of a single piece of coal to Bob Cratchit in 1843 might have seemed rather stingy; however, it isn’t much better in 2024, where an employer can instead now give a bag of coal, or more likely, a high street voucher or flu vaccination, without incurring a taxable benefit in kind.  The cost of the benefit must not exceed £50, and it certainly can’t be cash.  Also, it must not be given in respect of services performed but rather as a gesture of goodwill. A gift as a Christmas present will satisfy ‘Inspector of Taxes’ Mr Scrooge that the trivial benefits in kind exemption can apply to avoid a taxable benefit in kind.  Be careful not to exceed the £50 threshold as the exemption will be withdrawn. 

Tax-Free Gift No. 3 – PAYE Settlement Agreement (PSA) 

The most gracious gift by the employer is to settle the employee’s tax liability on their behalf.  The employee need not be aware of such a gift; however, the employer would probably like to make employees aware of the gift as a useful tool for staff morale and retention. 

A PSA is an agreement between the employer and HMRC whereby the employee’s income tax liability will be settled by the employer.  The tax liability is itself treated as a benefit and therefore this requires a grossing up calculation.  Overall this method is more expensive for the employer; however, the gleaming smile of appreciation from the employee will surely make up for the pain in the bank account! 

A PSA can’t be used for everything, and cash is always excluded; however, where items are minor, irregular or impracticable for the employer to apply PAYE or apportion the value, then employers can consider a PSA.  These can be applied for any time up to 5 July following the end of the tax year. 

Tax-Free Gift No. 4 – A Mobile Phone 

A top-end mobile phone can be very expensive to buy.  An employer can purchase a mobile phone and make it available to the employee without incurring a taxable benefit in kind.  This benefit is applicable to one mobile phone per employee, and the employer has to retain ownership; however, any private use of the mobile phone is not treated as a taxable benefit in kind.  Smartphones are the norm today; however, the Ghost of Christmas Past can remember a time when HMRC tried to treat smartphones as outside the mobile phone exemption. Thankfully, HMRC has updated its definition of a mobile phone to include a smartphone. 

Tax-Free Gift No. 5 – Reimbursement of Professional Subscriptions 

Many employees will be part of a professional body and will be required to pay professional subscriptions to carry out their duties.  Where the professional body appears on HMRC’s ‘Nice’ list 3, the subscriptions will qualify for tax relief.  Where the subscription qualifies for tax relief, the employer can reimburse the employee tax and NIC free for the cost of the professional subscription.  Get the timing right and this can be a lovely Christmas miracle. 

Ready to Spread Some Christmas Cheer?

It’s the perfect time to consider how you can give back to your hardworking employees in a meaningful and tax-efficient way. From festive parties to thoughtful benefits, these options not only show appreciation but also boost morale without burdening your budget.

If you’d like to discuss how to implement any of these tax-free treats or explore other ways to make your employee benefits more impactful, get in touch with us today. Let’s make this holiday season a little brighter for your team—without the taxman stealing the show!

🎄 Contact us now and let’s start spreading that holiday cheer. 🎄

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