Not sure about the tax implications of giving gifts to your employees? We’ll help you draw up internal guidance to make sure any gifts don’t unintentionally fall outside HMRC’s Trivial Benefits rules.
Can directors and employees receive gifts from the company tax free?
Giving gifts to your employees can be a great way to increase engagement and raise the overall morale of your team, but how much can you give before tax is incurred? And how do the rules differ if you are giving gifts to your directors?
As long as you follow HMRC’s rules, you can give gifts that don’t exceed a value of £50 to your employees without any tax or national insurance (NI) charges arising. The cost of this is also tax-deductible by the company.
Making use of the Trivial Benefits Scheme
As part of HM Revenue & Customs’ (HMRC’s) Trivial Benefits Scheme you can give gifts to your employees to mark birthdays, weddings or just ‘because’, all without attracting any tax charges. Owners can also benefit from the same Trivial Benefits scheme, although care needs to be taken that the frequency in using the trivial benefits exemption, does not create a legitimate expectation.
- Trivial benefits can be provided to employees without any adverse tax or NI implications, and with no need to report them on a P11D form (the HMRC form used to report any ‘benefits in kind’ that you have provided to an employee).
- To qualify, gifts cannot be a reward for services, cannot be cash or a cash voucher, cannot be contractual (including under salary sacrifice arrangements), and the cost must not exceed £50 per gift.
- For directors of close companies, the total cannot exceed £300 in any year (which includes where the benefit is provided to a member of the employee’s family or household who is not an employee in their own right; where the family member or member of the household is an employee themselves, they will also be subject to a £300 cap). Although not limited for other employees, if it becomes a regular gift then it’s likely to be treated as a reward for services – which would then have tax implications.
- If over the course of a year, a director awarded themselves 6 x £50 gift cards (maxing out the £300 cap) as a higher-rate taxpayer they could save around £130 in tax and NI compared with a £300 salary. The company would also save about £42 in NI, but as mentioned above, the gift cannot be made under salary sacrifice arrangements.
- Gift cards are fine as long as they’re not pre-loaded debit cards that can be used to withdraw cash – remember you cannot give cash as a gift.
Employers wishing to provide gifts with a value of more than £50 can do so without creating a taxable benefit arising on the employee, by including the gifts in a PAYE Settlement Agreement, where the employer settles the tax/NIC due, based on the grossed-up value.
Let’s look at an example of these rules in practice:
If an employee is given a hamper below a value of £50, for their birthday or because your feeling generous, it would fall within the exemption. However, if they were given a hamper for hitting a sales target, that would be taxable. To break it down, you can’t gift your employees anything if it’s related to company or individual performance without incurring tax.
Talk to us about meeting the rules around employee gifts
It’s important that you stick to HMRC’s rules around employee gifts and don’t end up unintentionally creating a negative tax impact for people on your team, or for the business.
At HB&O, we’ll help you draw up clear, well-explained internal guidance to make sure gifts don’t unintentionally fall outside of the rules.
Get in touch with our tax department today to find out more.
Email: [email protected]
Phone: 02476 306 029