Tax-free gifts to employees

Christmas, the traditional time for giving is fast approaching.

Many employers choose this time to reward their staff for the hard work and commitment over the past year by giving them gifts (benefits) in the form of non-cash items. Unfortunately, unless handled correctly the gifts may give rise to income tax and national insurance contribution liabilities for the employee, not quite the consequence that the employer wanted.

A tax exemption is available which should help employers ensure that the benefits provided are exempt, it must satisfy the following conditions:

  • the cost of providing the benefit does not exceed £50 per employee (or on average when gifts 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)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
  • 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.

If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exceptions 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 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 of each employee cannot be established, an average could be used. Some HMRC examples consider gifts of turkeys, a bottle of wine or alternatively a gift voucher.

Further details on how the exemption will work, including family member situations, are contained in the HMRC manual

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

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