Employee Gifts and Trivial Benefits

Employers can provide benefits to staff without incurring tax, provided the benefits meet the conditions. HMRC deem some small benefits trivial and, therefore, exempt from tax and reporting obligations.

gift

Conditions

You don’t have to pay tax on a benefit for your employee if all of the following apply:

  • it cost you £50 (including VAT) or less to provide, or the average cost per employee if provided to a group of employees, and it is impracticable to work out the exact cost;
  • it isn’t cash or a cash voucher (but gift cards are OK as long as they are not exchangeable for cash);
  • it isn’t a reward for their work or performance: in recognition of particular services performed (or in anticipation of such services) or as part of their normal employment duties; and
  • it isn’t an entitlement in their contract (including under salary sacrifice arrangements)

This is known as a trivial benefit. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

But if any of these conditions aren’t satisfied, then the benefit is taxed normally – via a P11D, PSA or taxed through the payroll. Also, if the cost exceeds £50, the whole amount will be taxable rather than just the excess.

Directors

But you can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company. A close company is a limited company run by 5 or fewer shareholders.

Employees who aren’t directors can receive multiple trivial benefits throughout the year, as long as each one does not exceed £50. However, where the employer is a close company, the exemption is capped at a total cost of £300 in the tax year, where the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household).

Examples of trivial benefits

Per HMRC’s guidance, some types of examples of trivial benefits are:

  • taking a group of employees out for a meal to celebrate a birthday;
  • buying each employee a Christmas present or birthday present;
  • flowers on the birth of a new baby;
  • a summer garden party for employees.

The aforementioned is on the basis that the benefit per employee does not exceed £50.

See HMRC’s quick guide

Non-taxable benefits

Certain other benefits you provide to your employees are not taxable; these can be a good way to incentivise staff tax-efficiently.

Examples:

  • Payments for business mileage in an employee’s car, provided they are within HMRC-approved rates (45p per mile for the first 10,000 miles and 25p per mile thereafter). Any excess above these amounts will be taxable.
  • Employer payments into a registered pension scheme
  • Medical treatment to help an employee return to work after an absence (or expected absence) of at least 28 days, up to a maximum cost of £500
  • One health screening assessment and one medical check-up per year, but any follow-up treatment is taxable
  • Meals that you provide in a staff canteen and light refreshments at work
  • Parking provided at or near an employee’s place of work
  • Workplace nursery places for employees’ children and childcare vouchers (if entered in the voucher scheme before October 2018). For new parents, information on applying for tax-free childcare can be found at gov.uk/get-tax-free-childcare
  • Removal and relocation expenses up to a maximum of £8,000 per move
  • One mobile phone per employee, registered in the employer’s name
  • Annual social functions for employees provided that, in any one tax year, the total cost does not exceed £150 per head (including VAT) – see our article on Christmas parties
  • Use of a pool car – this is a vehicle made available to more than one employee, with very limited private use, which is not normally kept overnight near the residence of any employees.
  • Expenses paid or reimbursed by employers, so long as they were incurred entirely for business purposes. This includes office equipment bought by an employee for home working; however, this must be discussed in advance. Any significant private use element could be subject to tax and National Insurance via the payroll.

Clients and customers

Business gifts to clients are not normally allowed as a deduction against profits – they are treated in the same way as business entertaining. There are exceptions:

  • Gifts of free samples of your products are tax-deductible
  • Gifts carrying a conspicuous advert for the business are tax-deductible (e.g. mugs, diaries or pens), but only up to £50 per person per annum.
  • Gifts of food, drink, tobacco and vouchers receive no tax deduction.

Christmas cards to clients and prospects are considered an office expense and are deductible, provided they carry a clear advertisement for the company sending them.

When rewarding third parties, such as clients or suppliers, with gifts that are taxable (such as non-cash vouchers), a Taxed Award Scheme (TAS) can be set up to deal with any tax and NICs. No employee NICs are due on gifts to third parties made under a TAS.

If you require assistance with benefits or tax advice, please contact us, and we will be happy to assist you. 

About Graham

Accountant specialising in tax, property, and estate planning. A regular speaker at landlord, property Investor, and later life planning events.

11164 Image Size: 2560 x 1769