As it is the festive season and employers wish to reward their employees with some goodwill gesture, let us look into the tax side of these gifts and trivial benefits.
The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates or a meal out, without having to put it on the P11D and without either the employer or employee having to pay any tax or National Insurance. The employer will also be entitled to claim income tax or corporation tax relief on the cost.
There are three key conditions:
The examples given in the HMRC draft guidance are, for the most part, sensible and very helpful.
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill, you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
The legislation does not impose a limit on the number of trivial benefits that an employer can provide during the tax year. It can be on birthdays, religious days and on any other days as long as it is not in recognition of the employee’s work.
Supposing a GP surgery buys four £15 boxes of chocolates to give to each of the employees. If the partners take them into the office and say “Hey guys, we have done really well with the GMS contract this year so here are some chocolates”, that would be a reward for services and as such, would be taxable and NICable.
However, if the partners were to say “The sun is out, the sky is blue, I’m in a good mood and this is for you”, then the chocolates would be a trivial benefit.
The directors/shareholders can enjoy trivial benefits themselves, but HMRC imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household).
Gift cards with a value of £50 or less will count as a trivial benefit as long as these gift cards cannot be exchanged for cash.
To count as “trivial”, the benefit must satisfy the following conditions:
If the cost of a benefit is more than £50, the benefit does not apply and the full amount is taxable, not just the excess over £50.
You can still provide a Christmas party or dinner for your staff and spend up to £150 per head, provided all staff are invited.
Any gift or bonus of over £50 must be put through the payroll and tax and National Insurance will be deducted.