The mutual respect between employer and employee is what makes businesses tick, and a happy team member is an essential component of any thriving and successful workplace. So, what better way to keep workers motivated than with a token of your gratitude and appreciation?
One recent Oxford University study showed that happy workers are 13% more productive, so contentment in the workplace even has the backing of genuine scientific research. It appears that the seven dwarves were on to something after all!
Gifting staff – whether it be a hamper to celebrate a recent marriage or lunch to say happy birthday – can feel like an unnecessarily complex process, when in reality it needn’t be. Admittedly, there are tax implications to take into consideration, both for yourself as an employer and for your member of staff, client or supplier. By giving your staff a gift without fully understanding the tax implications, what was initially intended as a nice gesture may end up in unwanted additional tax for the team member in question. Don’t worry though, because we can help with that.
At hampers.com we know how difficult it can be to remember the nitty gritty of the tax implications of gifting to employees, so we’ve teamed up with the guys at Hazlewoods LLP to explain how businesses can avoid the tax bear-trap when purchasing gifts for employees, whether congratulating them for a wedding or gifting them on a personal milestone. The really good news is that you can still reward your team fully, and this is where we can help.
Can I give workers a tax-free gift?
If you are concerned that you won’t be able to reward your staff without causing them to pay more tax, then don’t worry. It is possible to present your workers a gift or benefit that is free of tax and National Insurance Contributions (also known as NIC, which is a tax on earnings that pays for various benefits out of a National Insurance Fund), thanks to the ‘trivial benefits exemption’ introduced back in April 2016.
Certain benefits are subject to a ‘benefit in kind tax’, but are considered ‘trivial’ and non-taxable if they meet specific requirements. This means that the gift does not need to be reported to HMRC on a P11D; a form that outlines the cash value of any work-related taxable expenses or benefits received by staff over the tax year that are not included in wages.
What is a trivial benefit?
The conditions that need to be met to qualify as a trivial benefit are as follows:
- The benefit cannot be cash or a cash voucher (high street vouchers, gift cards and other non-cash vouchers are OK)
- The benefit must not be provided in recognition of the staff member in question’s services in the course of their employment (i.e. as a reward for success or meeting targets)
- The benefit must not be provided in respect of a contractual obligation or any salary sacrifice arrangement (i.e. not in the terms of their contract or in lieu of payment)
- The total cost of the benefit cannot exceed £50*
* The £50 limit is most likely the part many employers forget, or at least what that entails. To be clear, the £50 is inclusive of the total cost of the benefit, and as such includes VAT and other costs involved, such as delivery. If the gifts are spread across the business, then it is an average of £50 per person (if not possible or impractical to work out the exact cost per head). If the gift or benefit exceeds £50, then the whole amount becomes taxable, rather than just the excess over the £50 limit. Records should be kept of all trivial benefits provided, in order to prove that the exemption limit has not been exceeded.
While there is no limit on the number of trivial benefits that can be provided by an employer to their staff, directors of close companies (a company run by five or fewer, or with fewer shareholders) can only receive gifts with a total value of up to £300 per tax year. The amount also includes gifts or benefits of any kind given to a member of the employee’s household or family.
If these criteria are not met, and the employer has not signed a PAYE Settlement Agreement (or PSA, which we will come on to shortly), then the worker will be expected to pay tax on the benefit, and you, the employer, will need to pay Class 1A or 1B NIC.
Examples of a trivial benefit
The following examples would be considered as a trivial benefit, as long as the total amount per staff member does not exceed £50:
- Buying the team lunch to celebrate one of their birthdays
- Seasonal gifts such as Christmas presents and Easter eggs
- Flowers to rejoice the birth of a child
- A food & drink hamper to celebrate a colleague’s marriage, as a Christmas present to the team or as a ‘thank you’ to staff members (providing it is not a ‘thank you’ in recognition of work the employee has done)
For example, an employer takes their team out for lunch to celebrate one of their birthdays. The bill comes to £20 per head, and those not present were provided with a £20 gift card instead. This would legally be considered as a trivial benefit.
Benefits not included in trivial benefit exemption
HMRC guidance also gives some examples of the type of things that would not be included in the trivial benefit exemption:
- Providing the team with a working lunch (as this is related to their employment)
- A gift or reward for meeting performance targets
- An award for length of service
- Gifts given as a ‘thank you’ for good annual results
For example, 10 (very lucky) team members are gifted a bottle of wine each for Christmas, but the price of each wine is £50, plus £5 delivery. As the total price of the gift for each person comes to £55, it would not be excluded as a trivial benefit exemption, and would be taxable.
Although the above examples may not qualify as a trivial benefit, it does not necessarily mean that they will automatically be taxable. For example, a separate long service award exemption applies for non-cash awards made to an employee who has worked for you for at least 20 years up to a value of £50 per year of service (providing that they have not received a long-service award in the last 10 years).
What gifts are always taxable?
Unfortunately, there are certain gifts that are always taxable, and therefore subject to PAYE and NIC. This includes cash or cash vouchers of any value, even if they are under £50. This is only the case for non-cash vouchers (i.e. high street vouchers) when they exceed the £50 trivial benefit limit.
What is a PAYE Settlement Agreement, and how can it help?
In the tax business a PAYE Settlement Agreement is known as a PSA, and it is a more flexible way of managing expenses payments, benefits and gifts. A PSA allows you, as an employer, to make a single, annual payment to cover tax and national insurance for minor, regular or impracticable expenses throughout the year.
Minor expenses covers small gifts not covered under the trivial benefit rules, irregular covers items not paid at consistent intervals over the year and impracticable covers items where it is hard to assign a specific value to each member of staff.
Rather than paying Class 1 or Class 1A NICs, you pay Class 1B NICs on the items agreed in the PSA, on the total amount of tax payable. You should consider a PSA if you will be expending any of the items mentioned above, and are particularly useful if you intend on buying employees gifts over £50, or on an irregular basis, or items where it is impractical to apply PAYE to or identify what should be included on a P11D form, such as a large staff event.
How can hampers.com help?
Our expertise lies in bringing joy to gifting, and within this blog we hope to have highlighted the importance of a team that is together, and the benefits that can be brought by sharing gifts with staff. In light of COVID-19, it’s more important than ever to show appreciation to your team, and it hasn’t affected the ability to send gifts to staff, even if they are working from home.
hampers.com can deliver to home addresses without any extra hassle, and free of charge to any UK addresses, including highlands & islands.
We are fully compliant with GDPR, meaning that private addresses will remain private, given to us purely for the purpose of helping you to send a special gift hamper to staff, colleagues and beyond.
Whatever it is you are looking for, we can help – we have beer hampers for team members that love a pint after work, food hampers for those with a sweet or savoury tooth, and a whole host of delicious festive food, drink and more in our dedicated Christmas hampers. Bringing joy is what we do, so whatever the occasion, we are here to help.
Having cleared all of that up, you can continue to go about gifting your wonderful team to show them they are appreciated, without worrying about the tax man (too much!). Whether you are looking to stay within the trivial benefit limit or go beyond, we’ve got all your corporate gifts needs covered with our dedicated Corporate Hampers team.
We’ve got a fantastic array of hampers that fall within the trivial benefit limit, such as our bestselling Bearing Gifts Hamper - a veritable feast of sweet and savoury - the Luxury Cream Tea Gift Hamper, or the Classic Wine, Cheese & Pate Hamper. All of these have free UK delivery, so do not surpass the trivial benefit limit.