Giving Gifts To Employees

Understanding the tax implications of giving a gift to an employee will avoid problems if HMRC make a PAYE control visit. There are a number of factors to consider, such as the type of gift, the recipient and the value of the gift in order to avoid unexpected tax liabilities.

Are gifts given by businesses to employees tax-deductible?

For businesses, gifts given are generally tax-deductible for Corporation Tax purposes and incur employer’s National Insurance. For employees, gifts received are generally liable to Income Tax and National Insurance.

There is an exception. If the gift qualifies as a trivial benefit, it is free from Income Tax and National Insurance.

Under the trivial benefits rule, businesses may deduct the cost of gifts given to employees provided the maximum value of any gift is limited to £50 (inclusive of VAT). Employees may receive multiple gifts throughout a tax year provided each gift is below this value. For example, a company may wish to give a gift to an employee for their birthday, for Christmas and another for the birth of their child. Provided the cost of each gift is less than £50, the trivial benefits rule will apply.

Where the recipient is a Director of a “close company” there is a limit on the total value of all gifts given. If the cost of each gift is less than £50 and the total of all the gifts for the tax year is less than £300, the trivial benefits rule will apply.

In addition to the restrictions on cost, other conditions must be satisfied for a gift to be regarded as a “trivial benefit”:

• Cannot be cash, a cash voucher, or something that is redeemable for cash.
• Cannot be linked to the employee's performance.
• Cannot be provided or seen to be provided as a contractual obligation under the employee’s contract of employment or as part of a salary sacrifice scheme.

It is worth bearing in mind that any gift over the value of £50 will be classed as a benefit-in-kind, and tax and National Insurance will be due on the full value and not just the excess over £50.

Gifts and Awards for Long Service

In addition to the above, an employer may wish to give in the same year a non-cash gift for long service. For the gift to meet the tax-free exemption all the following must apply:

• the employee must have worked for the employer for at least 20 years
• the award is worth less than £50 per year of service
• the employee has not received a long-service award in the previous 10 years

For example, an employer could give a non-cash award with a value of up to £1,000 to an employee who has completed 20 years’ service.