Expenses and Benefits: Tax-free Gifts to Staff

In an environment where most employee 'perks' is subject to tax, it may be helpful for you as a company director and business owner to be aware of the few concessions that have been made by HMRC.

However, these concessions may not apply if the arrangement is linked with the employee giving up an amount of salary to receive the benefit (known as salary sacrifice).

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What expenses can I claim on gifts to staff?

There are circumstances in which HMRC will allow you to claim the cost of gifts to your employees. Some of these instances include:

Staff parties

Staff annual functions (e.g. a Christmas party) will not be regarded as a taxable benefit, and will qualify for corporation tax relief where the total cost per person attending is not more than £150 per year (including VAT). This is important, if the costs per person attending exceeds £150, the full amount will become a taxable benefit.

There are other conditions; the party must be open to all employees (or all employees in a specific location) and it’s not necessary to limit this to one annual event, if you keep the cumulative cost to £150 per head you can have smaller events throughout the year.

Of course, 2020 has thrown many restrictions at businesses that will impact on events this year and HMRC has confirmed that virtual events will benefit from the same treatments, provided they meet the above criteria.

For further details of other non-taxable benefits see our expenses section.

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Trivial benefits

Under certain circumstances, HMRC will allow directors to provide their employees with certain gifts with no obligation to include costs in end of year reporting, as long as certain conditions are met. This is known as trivial benefits.

What counts as a trivial benefit?

Small gifts to directors or employees, termed ‘Trivial Benefits’ by HMRC will qualify for corporation tax relief and will not be subject to personal tax. This could apply to gifts such as Christmas gifts, or gifts on the arrival of a child or other personal event.

The value of the gift cannot exceed £50, if it does the full amount will be a taxable benefit.

To qualify for tax relief, the gift cannot be cash or a voucher exchangeable for cash. A cash benefit, or a cash voucher is always taxable irrespective of the value.

Directors of close companies, this is a company with 5 or fewer shareholders, are further subject to an annual cap of £300 on gifts to themselves or employees who are members of their family.