The Ultimate Guide to Tax-free Employee Gifts

As we near the end of another year, business owners are thinking about end-of-year gifts to employees.

The concept of a business gift can be confusing, you might find yourself asking, when are gifts to employees tax-deductible?

Employees are the most important asset of a business, so what better way to thank them for their hard work and dedication throughout the year. If planned correctly, employee gifts can be tax-free, however, it is important that the guidelines set out by HMRC are adhered to. In this article, we are going to discuss some key points and answer some key frequently asked questions regarding this topic.

HMRC state that employers can provide tax-free gifts to employees so long as the following criteria is met:

HMRC permits corporate gifts with a value of up to £50 to any individual in a tax year, provided that the gift prominently features advertising for your business. Your business name or logo should be clearly displayed for it to be recognised as a corporate gift. Such gifts cannot include food, beverages, or exchangeable vouchers. Some suitable examples include:

• The cost of the gift is £50 or less - including VAT.
• The gift must not be cash or cash vouchers. However, note that gift cards with a non-cash value are allowed.
• The gift cannot be something that the employee is entitled to as part of their employment contract.
• The gift cannot be performance-based or related.
• Employees can receive multiple gifts throughout the year so long as all the above criteria is met.

Here are a few employee gift ideas which meet the required criteria:

• Food and drink gifts – A popular option is a hamper filled with food and drink, this could include chocolates, festive treats, alcoholic/non-alcoholic beverages, and biscuits.
• Gift cards and vouchers – So long as the voucher value is no more than £50, they are a great option for employee gifts. M&S, The White Company and John Lewis are some popular retailers, alternatively, you could go for a restaurant voucher such as Nando’s or Pizza Express. Another option could be a voucher for an experience, such as the cinema or a theme park.
• Practical/personalised gifts – Tech accessories, coffee cups/ water bottles. Personalised gifts are another option, such as mugs, calendars or diaries for the upcoming year.

Frequently asked questions:

How often can I give a trivial benefit to employees?Whilst there is technically no limit for employees, the benefit ceases to be trivial if it becomes a regular occurrence. The £300 limit per annum for directors is a useful guide as to the number of times it would be expected for this benefit to be used.

Can I use this to give tax-free gifts to employees who have met their KPI targets?No, trivial benefits cannot be linked to the work or performance of an employee. A performance–related reward would be taxable as income for the employee.

What are the conditions for directors?The same £50 limit applies, and there is also an annual cap of £300 on the aggregate value of trivial benefits that can be given to the directors or office holders of the company, or their close relatives.

I’m looking to pay for my employees to have a day out. Is this considered a trivial benefit?HMRC does allow employers to cover the cost of an annual party or similar social function, without the employees attracting a tax charge. In order to qualify, the event must be open to all your employees, be an annual function (such as a Christmas party or summer barbeque), and should cost £150 or less per person. It’s important to note that the £150 per person limit includes all costs associated with the function such as transport, food and drink, accommodation, and VAT.
 

By following the above criteria, business owners can provide tax-free end-of-year gifts to employees in order to show their appreciation. This gesture not only boosts staff morale but reinforces a positive working environment as you enter into the new year.

If you have any long-standing employees whom you wish to reward for their years of service, there is an additional concession for providing ‘long-service awards’ to staff who have worked for your business for at least 20 years. The payment can be made tax-free provided the award meets all the criteria below:

• A non-cash award
• Worth less than £50 per year of service
• You have not given the employee a long-service award in the last 10 years.

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Please note: This article is provided for information only and was correct as at time of writing (07/11/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.