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Business Services  •  Business Tax  •  Personal tax

Know the rules for tax free staff benefits

By RJP LLP on 20 June 2019

It’s the thought that counts when it comes to making gifts, whoever the recipient is. This includes employees as research shows that giving staff even just a token gift can make them more productive.

According to One4allRewards.co.uk, receiving a gift from their employer is enough to make 91% of people work just a little bit harder. Token or trivial gifts can also be tax efficient. Provided they satisfy certain rules, they will not attract any tax liabilities either. Everyone is a winner.

Most people are aware that to qualify as tax free, a gift to an employee needs to be worth £50 or less. This is what is known as a ‘trivial benefit’. There are a number of other rules concerning trivial benefits and also a special rule that applies for company directors and their families. Here is what you should know about employee benefits.

Conditions of trivial benefits

The following conditions apply for ordinary employees who are not directors, or part of a director’s family.

Importantly, each one of these four conditions must be met for any single item gifted to qualify as tax and NIC-free.

  1. The item must cost the employer £50 or less;
  2. It must not be cash or a cash equivalent voucher e.g. store gift cards;
  3. There must be no connection between the gift and any contractual obligation;
  4. The gift must not be made in recognition of services performed as part of normal employment duties.

 

Examples

  1. A design agency needs its employees to work late one evening to finish a big project and the owner orders pizza for all the staff because they miss their evening meal. The food is classified a reward for working additional hours and breaches condition 4, so cannot be considered a trivial benefit and is taxable. For tax purposes, it would be better to offer everyone a hearty lunch instead and tell them to bring a packed supper!
  2. Conversely, the boss of the same agency decides that since it is her birthday she will buy lunch for everyone at the company. There is no need for anyone to have worked late to get the food. It counts as a trivial benefit.

  

Other conditions for trivial benefits

There is no limit to the number of trivial benefits that can be provided to employees in a single year, but they must meet all 4 of the listed conditions to qualify.

If you want to spend £5 to buy your staff members a free coffee and croissant every day from Starbucks, provided you don’t expect anything in return, that is perfectly fine in HMRC’s eyes. The same is true if all staff members are provided with free or subsidised meals at the workplace.  The cost of these meals can be tax-free under the rules applying to a staff canteen.

There is a cap of £300 per tax year for trivial benefits provided by a close company to a director of that company, or to a member of the director’s family or household  where they are also a director or employed within the company.

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It’s the thought that counts when it comes to making gifts, whoever the recipient is. This includes employees as research shows that giving staff even just a token gift can make them more productive.

According to One4allRewards.co.uk, receiving a gift from their employer is enough to make 91% of people work just a little bit harder. Token or trivial gifts can also be tax efficient. Provided they satisfy certain rules, they will not attract any tax liabilities either. Everyone is a winner.

Most people are aware that to qualify as tax free, a gift to an employee needs to be worth £50 or less. This is what is known as a ‘trivial benefit’. There are a number of other rules concerning trivial benefits and also a special rule that applies for company directors and their families. Here is what you should know about employee benefits.

Conditions of trivial benefits

The following conditions apply for ordinary employees who are not directors, or part of a director’s family.

Importantly, each one of these four conditions must be met for any single item gifted to qualify as tax and NIC-free.

  1. The item must cost the employer £50 or less;
  2. It must not be cash or a cash equivalent voucher e.g. store gift cards;
  3. There must be no connection between the gift and any contractual obligation;
  4. The gift must not be made in recognition of services performed as part of normal employment duties.

 

Examples

  1. A design agency needs its employees to work late one evening to finish a big project and the owner orders pizza for all the staff because they miss their evening meal. The food is classified a reward for working additional hours and breaches condition 4, so cannot be considered a trivial benefit and is taxable. For tax purposes, it would be better to offer everyone a hearty lunch instead and tell them to bring a packed supper!
  2. Conversely, the boss of the same agency decides that since it is her birthday she will buy lunch for everyone at the company. There is no need for anyone to have worked late to get the food. It counts as a trivial benefit.

  

Other conditions for trivial benefits

There is no limit to the number of trivial benefits that can be provided to employees in a single year, but they must meet all 4 of the listed conditions to qualify.

If you want to spend £5 to buy your staff members a free coffee and croissant every day from Starbucks, provided you don’t expect anything in return, that is perfectly fine in HMRC’s eyes. The same is true if all staff members are provided with free or subsidised meals at the workplace.  The cost of these meals can be tax-free under the rules applying to a staff canteen.

There is a cap of £300 per tax year for trivial benefits provided by a close company to a director of that company, or to a member of the director’s family or household  where they are also a director or employed within the company.