Making sure gifts to employees are tax-free

A tax exemption is available which should help employers ensure that the benefits provided are exempt and do not result in a reportable employee benefit in kind.

In order for the benefit to be exempt it must satisfy the following conditions: the cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees), the benefit is not cash or a cash voucher, the employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice). Also, the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties and where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

Should any of these conditions not be met, the benefit will be taxed in the normal way (subject to any other exemptions or allowable deductions).

One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. HMRC examples consider various gifts including turkeys, bottles of wine and gift vouchers.

Further details on how the exemption works, including family member situations, are contained in the (Her Majesty’s Revenue and Customs) HMRC manual.

However, if you are unsure please do get in touch before assuming the gift you are about to provide is covered by the exemption.

Danielle Harvey, Director at Harvey, Telford and Bates says:

“Should you wish to gift your employees for their services in employment to your business, it is worth noting these conditions in order to meet them and therefore ensure you are not taxed in doing so. Here at Harvey, Telford & Bates, we are able to advise you on whether you are able to meet these conditions before proceeding with gifting your employees.”

For more information or advice on giving small gifts to employees, please call us on 01743 462604 or you can email us at [email protected]