‘Tis the season…

25 November 2018

This article was featured in the December 2018 / January 2019 issue of the magazine.

Samantha Mann MAAST MCIPPDip, CIPP senior policy and research officer, revels in the festive spirit

In 1843, Charles Dickens wrote “I have endeavoured in this ghostly little book to raise the ghost of an idea which shall not put my readers out of humour with themselves, with each other, with the season, or with me. May it haunt their house pleasantly, and no one wish to lay it.”

Dickens’ A Christmas carol captured the Victorian era’s enthusiasm for reviving and creating Christmas traditions such as family gatherings, festive generosity and, of course, generous amounts of food and drink. For many of us, those traditions remain a sound basis as we go forward to build our own festive traditions.

Though my words will do little to further the traditions of the season, they include a scary story (or two) together with warnings of how the ghost of Christmas past can indeed come to haunt the unwary.

...requires 24/7 and 365/6 round the clock, week and year coverage...

Festive quick polls

If you have been reading the CIPP’s daily news features you may have noticed the festive themed quick polls that have been running over the last few weeks, seeking responses on a range of festive pay and reward traditions in the workplace.

The CIPP policy team have run these festive polls for a couple of years now. So, thank you to all those who take the time to respond.

In the 2016 quick poll, we asked: “If you could choose your Christmas reward what would you choose?”. We received 648 responses, revealing that:

30% would choose a Christmas party/meal
56% would prefer a taxable cash equivalent payment (which got my vote), and
14% generously prefer to give by providing an equivalent donation to charity.

The 2017 quick poll, which focused on employers’ attitude towards festive frivolities, asked: “Does your employer or your business close over the Christmas and the new year period?”. The 695 responses break down, as follows:

15% reported there are no closure days
47% close for bank holidays, but
38% lucky respondents enjoy a complete Christmas/new year close down.

I pause here to acknowledge the increasingly global reach of UK payroll services in the 21st century which increasingly requires 24/7 and 365/6 round the clock, week and year coverage by our profession.

I look forward to reviewing the findings of the 2018 festive quick polls.

The income tax and National Insurance contributions (NICs) (classes 1, 1A, 1B) implications of providing benefits in kind (BIKs) appear consistently in the top three subjects that the CIPP Advisory Service are asked about – particularly at this time of the year – where it receives questions on gifts, parties and social events.

Trivial gifts

Historically, the issue of trivial gifts has seen many employers at odds with HM Revenue & Customs (HMRC) officials. Commonly referred to as a trivial benefit, there was until April 2016 no general statutory limit below which benefits would not be taxable; and so, what was deemed to be ‘trivial’ was very much a matter of debate between employers and HMRC.

In December 2003, The Telegraph (see https://bit.ly/2EWmz6x) reported ‘happy tidings of great joy’ when revealing that HMRC (well, the Inland Revenue, at that time) had written to Martin Weeks, director of Mitutoyo, informing that he would shortly be receiving a refund of £6,000. This was the amount he had previously paid to HMRC following an inspection that his tradition of gifting each employee a turkey at Christmas was not trivial and thus constituted a taxable benefit in kind.

Thanks to the work of the Office of Tax Simplification, April 2016 saw the introduction of a statutory exemption for trivial benefits that make clear a gift or token will be considered a trivial benefit, if it fulfils these principles:

costs £50 or less to provide
not cash or a voucher exchangeable for cash
not reward for the work or performance of an employee
not given as a result of contractual entitlement.

For an employer with a large number of employees, the total overall cost of providing a gift to their employees may be considerable yet the gift to each employee could still be a trivial benefit. This principle applies regardless of the total cost to the employer and the number of employees concerned.

No annual limit exists to the number of trivial gifts that can be provided, so long as they each fulfil the principles. The exception, however, is that the value of trivial benefits provided to the director of a close company across the tax year cannot exceed £300.

A trivial benefit provided as part of a salary sacrifice arrangement will not be tax exempt. Under the new optional remuneration arrangements effective from April 2017, it will need to be reported in a P11D return or, if payrolling is occurring, reported via a full payment submission (FPS) using either the higher value of the salary that has been sacrificed or the amount paid to provide the trivial benefit.

The Christmas party

The extent and scope of the income tax exemption for the Christmas party prompts most commonly received questions by the CIPP’s advisory team at this time of the year – but it isn’t an exemption that is entirely linked to Christmas. Indeed, the rules apply to any social function that fulfils the following requirements:

costs no more than £150 per head
held on an annual basis (for example, a Christmas party or summer barbecue), and
available to all employees (but this doesn’t mean all employees have to attend).

Where an employer has more than one location, an annual event that is open to all staff based at one location would still count within the exemption; furthermore, an employer could also provide separate parties for different departments. So long as all employees could attend one of the events, this would fulfil the relevant requirement.

If more than one annual function is held and the total cost per head exceeds £150, only the functions that total £150 or less will be included within the exemption.

...employer being liable for the acts or omissions of its employees

Example

Two events are held annually – one at Christmas and one in the summer – and all employees are invited to attend both events. The Christmas party costs £130 per head and the summer sizzler £80 per head, so as this totals £210 both events will not benefit from the exemption.

It would be more beneficial for the exemption to be used to cover the Christmas party costs, leaving the charge for the summer sizzler to be reported (via the P11D or the FPS, as appropriate) for the employees who attended.

A common error encountered is where employers hold a one-off event and assume this is also covered by the exemption. Equally, confusion arises with the use of the £150 limit.

Guidance for employers is provided by HMRC in the booklet 480 Expenses and Benefits – A tax guide, as well as on GOV.UK, which includes basic guidance for employers and access to HMRC manuals, that contain additional technical detail.

Vicarious liability

No festive themed article would be complete without a spooky tale to act as a warning for the unwary. (Do I hear “Oh yes it would” and “Oh no it wouldn’t”? It was too good an opportunity to miss including pantomime theatrics.)

For many years the threat of ‘inappropriate behaviour’ in the workplace – such as at a Christmas party or other work-related social event – has been acknowledged as a risk area for the employer. Now a recent ruling by the Court of Appeal casts the spotlight on the risk of the employer being found guilty of vicarious liability as a result of an impromptu party as well.

The term ‘vicarious liability’ refers to a situation where an individual is held responsible for the actions or omissions of another person. In the context of employment this can mean the employer being liable for the acts or omissions of its employees, where it can be shown that they took place in the course of their employment.

Earlier this year the Court of Appeal ruled in Bellman v Northampton Recruitment Limited how an argument over drinks in a hotel following the organised Christmas party could lead to the company being held vicariously liable for the actions of its managing director. (A detailed report of this case can be found on page 30.)

Following the company’s Christmas party, a small number of staff continued to drink late into the night at the hotel where many of them were staying. Discussion turned to work matters and an argument broke out about a new employee’s placement and terms. At this point Mr Major, the managing director, called all remaining staff together to remind them about his authority. When questioned by Mr Bellman, a sales manager, Mr Major became angry, lost control and knocked him out. Mr Bellman fell, hitting his head on the ground and suffering brain damage.

The Court of Appeal disagreed with the lower court’s ruling and found that there was sufficient connection between Mr Major’s wrongful conduct and his role and accordingly the company was held to be vicariously liable for his actions.

The above sorry tale brings me to the end of my Christmas story – “Oh yes it does!” – which leaves me to wish you a very merry Christmas and a happy, healthy and prosperous new year. May 2019 bring everything good to you that 2018 didn’t.