Christmas gifts

Another way to benefit staff is to consider making small gifts.

You don’t have to pay tax on a benefit (gift) to your employee if all of the following conditions are complied with:

• it cost you £50 or less to provide;
• it isn’t cash or a cash voucher;
• it isn’t a reward for their work or performance; and
• it isn’t in the terms of their contract of employment

Gifts that fall into this category have been labelled by HMRC as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.

Any gifts that do not meet this definition will likely be taxable.

4 facts about trivial benefits to bear in mind

Like a lot of things in life, the term “Trivial” wasn’t clear in the eyes of HMRC, it hadn’t been defined specifically to deal with employee Non-remuneration.

In fact, the legality of giving your staff tax-free gifts was seen as a bit of a grey area. However, as of 2016, HMRC passed legislation that set out clear limitations to trivial benefits, while creating a further category: benefits in kind.

1. Price cap

The clearest parameter to bear in mind is that any ‘gift’ given as a trivial benefit cannot have cost you more than £50. This is irrespective of how much has been paid for it but rather its market value. The reason being that if you give your employees £500 worth of clothes from your manufacturing business, while it didn't technically ‘cost’ you in money, it still has great value and could be sold on for personal profit.

The price cap is per person, which can be slightly difficult to calculate if a company lunch has cost £800 but a quarter of those eating ate half of the food. How is this calculated? To avoid splitting hairs in cases like this, HMRC have also put a yearly restriction of £300 per employee.

2. Non-cash

It has to be a material offering - you cannot simply hand someone a crisp fifty. This also includes any voucher that can be redeemed for cash. This is just too close to being a form of payment and so as a blanket rule, all cash gifts must be recorded and incorporated into the tax.

3. It isn’t a bonus

This has to be a purely altruistic offering. While that’s pretty difficult to define in a business environment, the best rule of thumb is that they cannot replace a bonus. So if someone’s landed you a new client and you give them a voucher, that isn't a trivial benefit.

4. It isn’t in their contract

Trivial benefits have to be one-offs or random acts of kindness. There cannot be a formal agreement between employee and employer about their supply and frequency. Again this resembles a type of payment.

Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders.

Watch out for VAT charge

If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.

HMRC Guidance:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21864