Can you give directors and employees free gifts from the company in a tax free way?
Providing small gifts to your employees throughout the year can be a great way to generate enthusiasm, motivation and engagement and raise team morale. But what can you give away before there starts to be tax implications for both the company and the employee? And what about the the rules to your directors?
There is good news. You can give gifts to your employees as long as the value of those gifts don’t exceed £50 in value. As long as you follow the rules set out by HMRC there will be no tax or National Insurance (NI) charges. The cost of the gifts are then also tax-deductible and are a legitimate expense that is made by the company.
You can give gifts to your employees to recognise birthdays, weddings or as a just ‘because’, without attracting any tax charges. Business owners can also avail themselves to the same benefits of the scheme.
Tax on trivial benefits.
You don’t have to pay tax on a benefit for your employee if all of the following apply:
- 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
- it isn’t in the terms of their contract
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.
Salary sacrifice arrangements.
If you provide ‘trivial benefits’ as part of a salary sacrifice arrangement they won’t be exempt. You’ll need to report on form P11D whichever amount is higher:
- the salary given up
- how much you paid for the trivial benefits
These rules don’t apply to arrangements made before 6 April 2017 – check when the rules will change.
Directors of ‘close’ companies.
You can’t receive ‘trivial benefits’ worth more than £300 in a tax year if you’re the director of a ‘close’ company.
A close company is a limited company that’s run by 5 or fewer shareholders.