Tax free gifts for employees

It is that time of year again, Christmas is around the corner. However, this year is a little different as many of us  will be working from home on Christmas jumper day and it is unlikely that we be catching up with colleagues at the annual Christmas party.

To stay in the Christmas sprit employers may want to send gifts to their employees instead, however if that gift gives rise to a personal tax charge it may be unwelcome. As HMRC see gifts to employees as benefits it will be necessary to consider if the trivial benefit rules for employers and employees apply, so certain gifts are exempt from income tax and national insurance.

The key conditions

The current form of the trivial benefit rules imply that no tax is payable if all of the following points apply.

  • The gift has cost the employer  £50 or less, including VAT, per employee.
  • The gift is not cash or a cash voucher (retail gift vouchers should be allowable).
  • The gift is not a reward for the employees work, past or present.
  • The gift is not part of the work contract or other arrangement.

Tax is due on all gifts that do not meet these conditions. As this is an all or nothing exemption, gifts with a value in excess of £50 will be fully taxable in line with the benefit in kind rules.

Where the  benefits are classed as ‘trivial’, HMRC do not require any notification of these gifts  being made.

Where various gifts are bought in bulk and provided to employees, working out the exact cost per individual gift may be impractical. When this happens the average cost of the gift can be used, and it must come under the £50 limit to remain ‘trivial’.

The special treatment of directors

Directors of close companies i.e. companies owned and controlled by five or fewer shareholders, have an annual cap placed on the value of ‘trivial’ gifts they receive in one tax year. The current form of the rules has a cap of £300. General employees are not subject to this rule.

What to watch out for

There is no general rule which places a limit on the number of ‘trivial’ gifts an employee can receive in one tax year, provided all the rules are met per gift. HMRC do however have rules in place which prevent employers from trying to divide a larger gift into several smaller gifts.

An example of this provided by HMRC shows how providing an employee with a gift card costing £10, would initially fall within the ‘trivial’ benefit rules. If the employer were then to top up the same card on 7 further occasions at a cost of £10 per time the total cost to the employer would be £80. Even though the card is topped up at separate occasions, the provision of the card forms a single benefit, and the total cost would be fully taxable in line with the benefit in kind rules. Retail vouchers from different stores should not fall under this treatment as they do not constitute one single benefit, so the limit per voucher would remain at £50.

Contact us

If you are unsure about how the rules may apply to gifts you are giving to your employees, please get in touch with Uzair Qasim, Healthcare Tax Assistant Manager, or alternatively contact us here.