Whether you’re looking to show appreciation for your employees, boost morale through employee recognition or you’re on the ball and already thinking about the Christmas period (we applaud your organisation 👏) there are ways to gift your employees that won’t land them with a tax charge.
Nothing gets you ready for the festive period quite like reviewing tax law and legal requirements…but it shouldn’t take the fun out of gift giving!
This step is an essential requirement of any successful recognition program and will help you ensure that your gifts to employees fall under the tax-free exemptions. You might already be wondering,
Are gifts given to employees taxable?
Unfortunately, the answer is yes, but there are existing exemptions that are available for you to give your non cash gift to your employees completely tax-free.
Which means you can still give gifts to your employees under HMRC’s exemptions, which are often referred to as ‘trivial benefits’.
What are trivial benefits?
A trivial benefit could be described as tokens of appreciation, given by employers, both management and HR, to employees within their organisation. They’re used on an ad-hoc basis when a company wants to recognise when their staff and are a great form of employee appreciation and aim to avoid any salary sacrifice..
They could be in the form of a coffee room snack, a birthday present, or a bespoke gift box.
These benefit tax free gifts fall under this category if they meet all of these conditions:
· It is not a voucher or cash in hand
· It is not a reward for performance or work
· It wasn’t included in the terms of the employee’s contract
· It is capped at £50 (£300 per year for directors)
A closer look…
1. It is not a voucher or cash in hand
The reason for this non-cash condition is quite simple. The whole point of a trivial benefit is that it isn’t intended to add financial value to the employee’s pay cheque. So that’s why it can’t be a nice fresh fifty-pound note in a card, or any kind of voucher that could be exchanged for cash. This falls under a form of payment and would have to be included into pay tax.
2. It is not a reward
Even though we normally mean something that doesn't have much value or is pretty minor when we say it's 'trivial', trivial benefits definitely carry a lot of value and importance in terms of company culture and work life. But they aren’t intended to be used when praising an individual for a job well done. This means if you want to prevent the benefit being taxable, you have to make sure the gift comes without any specific motive or reason. You just want to surprise and delight your staff – you are the office hero after all 🦸♀️🦸♂️
3. It wasn’t included in their contract
It’s the best feeling being on the receiving end of a random act of kindness. Making spontaneity a core aspect of your employee recognition will help the rewards come across as genuine and authentic. For your tax-free benefit, it can’t have been discussed or written in their contract as this would also count as a form of payment and should be subject to national insurance and income tax.
4. It is capped at £50
The value of the gift must not exceed £50 per employee. In the case the value exceeds £50 then the full amount would be taxable and not just the excess over the £50. This condition applies to each individual employee gift, but there is also an annual cap of £300 on gifts for themselves or employees within their family for those who are directors of close companies.
What about at Christmas time?
Well done to you for being ahead of the game and already starting to plan ahead! 🎅
If you decide to give your employees a Christmas present paid in cash it will be taxable as normal earnings and subject to national insurance and income tax. You now know that also applies to any cash voucher or voucher that could be exchanged for cash.
What is exempt when it comes to a Christmas party?
We’re all hopeful that we’re moving towards a position where we can host work Christmas parties as we remember them, so there’s no harm thinking about how tax is treated when it comes to organising a staff Christmas get together avoiding a salary sacrifice.
The tax exemptions apply if the event is all of the following:
· It’s an open invitation to all of your employees
· It’s an annual event, for example a Christmas party or summer barbecue
· The total cost of the event doesn’t exceed £150 per person
Bear in mind, the £150 total cost has to include every aspect of the event. That includes food, drink, entertainment, taxis home and overnight accommodation – so don’t go booking the Plaza for the team if you’ve already managed to book Beyonce to perform! 🎤
You can find more details on how these exemptions work in the HMRC manual. If you’re still unsure, talk to your accountant or advisor to confirm any plans.
Once you’ve taken the time to get the tax and legal requirements out of the way, you’re good to go! Now time to get stuck in with the fun stuff, start sending gifts today and surprise your employees in a way that will truly let them know that they are valued and appreciated.