Can you give directors and employees free gifts from the company in a tax free way?
Providing little gifts to your employees and different intervals throughout the year can be a great way to generate enthusiasm and engagement and raise morale within your team. But what can you give away before there starts to be tax implications for both the company and the employee? And what about the the rules to your directors. Do they differ?
There is good news. You can give gifts to your employees as long as the value of those gifts don't exceed £50 in value. As long as you follow the rules set out by HMRC there will be no tax or National Insurance (NI) charges. The cost of the gifts are then also tax-deductible, as in, they are a legitimate expense that is made by the company.
Making use of the Trivial Benefits scheme
You can find HMRC's Trivial Benefits scheme here. You can give gifts to your employees to recognise birthdays, weddings or as a just ‘because’, without attracting any tax charges. Business owners can also avail themselves to the same benefits of the scheme.
- Trivial benefits to employees won't have any tax or NI implications plus there is no need to report the benefits on a P11D form – the P11D form is the annual report submitted to HMRC when you have provided any ‘benefits in kind’ to your employees.
- In order to qualify, the gift cannot be a reward for services, it also cannot be cash or a cash voucher, it cannot be be contractual, and the cost must not exceed £50 for each gift given.
- Where directors of close companies are concerned, the total cannot exceed £300 in any one year. Although this amount is not limited for other employees, if it was a regular gift then it’s likely to be perceived as a compensation for services – which would then have its own set of tax implications.
- So it is possible for a director to award themselves a gift of 6 x £50 gift cards (which maxes out the £300 cap). if they were a higher-rate taxpayer then this represents a £126 saving in tax and NI compared with a £300 salary. The company itself will also save over £40 in National Insurance.
- Gift cards can be the perfect solution as long as they do not have the capacity to be able to withdraw cash against them. Remember that you cannot give any cash as a gift.
Let’s take a look at an example of the Trivial Benefit rules in practice:
So if your employee was presented with a bottle of wine for hitting a sales target, then this would be considered a taxable benefit. However, If they were given a bottle of wine because it was their birthday and that bottle of wine was below £50 then this would be within the terms of the exemption. Of course you could also give your employee that bottle of wine just because you are in a jolly mood and feeling generous – but it can’t be anything that is relatable to the company or to individual performance.
Chat to us about the rules for employee gifts
It’s important to have clarity around the rules of HMRC however minutiae it may feel. Otherwise you are in danger of unintentionally creating a tax which will have an impact on the individuals in your team or for the business itself.
Our clients get the benefit of these little insights so that you don't fall outside of the rules and regulations of Her Majesty's Revenue Service.