Tax on Employee Gifts

So as we near Christmas as a company owner, you want show your appreciation of your staff’s efforts by means of gifts and benefits. Although this is good for staff morale, you need to take care to do this in the most tax efficient way. The last thing you want to dampen the good festive cheer is fort a Benefit in Kind charge being raised against your employees, and them having to pay extra tax as a result!

S323A ITEPA 2003 gives the HMRC rules on the subject. In it it explains that you have to satisfy a number of conditions for a gift to be made tax free:-

the cost of providing the benefit should not exceed £50 (or if it is impracticable to work out the exact cost per person , then the average cost per employee should be below £50)
the benefit is not cash or a cash voucher
the employee is not entitled to the benefit as part of any contractual obligation
the benefit is not given as payment of particular services performed by the employee as part of their employment duties

If the main criteria requirements are satisfied then the employer can give their employees a Christmas gift that won’t attract a BIK charge.

If the employer gives the employees a cash gift then it would be both taxable and NICable as earnings through the payroll.

However, be aware that the rules work differently for company. There are additional restrictions imposed to prevent abuse. Where the employer is a close company and 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), the total value of benefits that can be treated as exempt trivial benefits is capped at a total cost of £300 in the tax year. This is known as the annual exempt amount.

For both employees and Directors, where the company provides benefits that it considers are trivial, it will need to keep suitable records to demonstrate that this amount has not been exceeded.

Crunchers – Accountants Edinburgh