Tax on Gifts
Can directors and employees receive gifts from the company tax free?
Giving gifts to your employees can be a great way to increase engagement and raise the overall morale of your team. But how much can you give before there are tax implications? And how do the rules differ if you’re giving gifts to your directors?
The good news is that you can give gifts that don’t exceed £50 in value to your employees without any tax or National Insurance (NI) charges arising – as long as you follow HMRC’s rules. The cost of this is also tax-deductible by the company.
Making use of the Trivial Benefits scheme
As part of HM Revenue & Customs’ (HMRC’s) Trivial Benefits scheme, you can give gifts to your employees to mark birthdays, weddings or just ‘because’, all without attracting any tax charges. Owners can also benefit from the same Trivial Benefits scheme.
Trivial benefits can be provided to employees without any adverse tax or NI implications, and with no need to report them on a P11D form – the HMRC form used to report any ‘benefits in kind’ that you’ve provided to an employee.
To qualify, gifts can’t be a reward for services, can’t be cash or a cash voucher, can’t be contractual, and the cost mustn’t exceed £50 per gift.
For directors of close companies, the total can’t exceed £300 in any year. Although not limited for other employees, if it was a regular gift then it’s likely to be treated as a reward for services – which would then have tax implications.
If over the course of a year, a director awarded themselves 6 x £50 gift cards (maxing out the £300 cap) as a higher-rate taxpayer they could save £126 in tax and NI compared with a £300 salary. The company would also save over £40 in NI.
Gift cards are fine as long as they aren’t pre-loaded debit cards that can be used to withdraw cash – remember you can’t give cash as a gift.
Let’s look at an example of these rules in practice: If an employee is given a bottle of wine for hitting a sales target, that would be taxable. If they were given the wine because it’s their birthday, as long as it was below £50 it would be within the exemption. It could also be given just because you’re in a good mood and feeling generous – it just can’t be anything related to company or individual performance.
Talk to us about meeting the rules around employee gifts It’s important that you stick to HMRC’s rules around employee gifts and don’t end up unintentionally creating a negative tax impact for people on your team, or for the business.
As your adviser, we’ll help you draw up clear, well-explained internal guidance to make sure any gifts don’t unintentionally fall outside of the rules.