Every year at this time we get asked by clients about the most tax efficient ways to reward their staff.
Rewards can be by gifts and benefits, but you need to take care this is done in the most tax efficient way and to ensure any taxable benefits are properly declared. If you go about it in the right way you can give tax free benefits to your staff and obtain tax relief for yourself or your company.
Gifts – If you provide gifts to your staff such as a bottle of wine, chocolates, flowers etc there are no tax implications providing the gift is considered to be ‘trivial’ by HMRC. There is a now a new statutory ‘trivial gift’ exemption of £50 so any gift up this value can be provided to a member of staff tax free. Please note that cash gifts cannot be included in this ‘trivial gift’ definition, however high street gift cards can be provided which can be a very attractive tax free perk. The one point to be careful of is that as soon as any gift exceeds £50, the whole amount is taxable not just the excess over £50.
Cash Bonuses – If you treat your staff to a cash bonus this must be put through the payroll and the appropriate tax and national insurance must be deducted. Unfortunately there is no “de minimis” or “exemption” to this rule, all cash is taxable. Otherwise we would all request our wages in cash if we were going to avoid paying any tax and national insurance! Any cash bonus can be “grossed up” through the payroll though so the member of staff gets the required £50 for example, in their hand, after tax.
High Street Gift Cards – Providing gift cards to your staff is likely to result in a bill from the taxman, unless you can keep the amount within the £50 ‘trivial gift’ exemption as mentioned above. Otherwise, you can either declare the gift card as a benefit in kind on each employee’s form P11D so that they pay the associated tax or more commonly you can set up a ‘PAYE Settlement Agreement’.
Entertainment – You can entertain your staff without causing them a tax liability. You can spend up to £150 per year per head without any tax implications. This limit will include the Christmas party, the summer barbeque and any other similar annual functions. The limit is £150 “per head”, so £300 per member of staff if partners attend.
PAYE Settlement Agreements – Your staff will appreciate the expensive Christmas hamper you gave them, or the £80 Marks & Spencer gift card you provided. Something they will not appreciate quite as much however, is the tax bill from HMRC on their Christmas gift. If you would like to continue your generosity and foot the tax and national insurance bill, you can set up a PAYE Settlement Agreement with HMRC.
As always we are always here to help and advise so please don’t hesitate to call.