Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now

×

InFocus

Top tax-free benefits for staff – gifts, parties and schemes

Options are available to businesses looking to provide “fun” tax-free benefits, such as gifts, parties and privileges, should they abide by given conditions

Top tax-free benefits: 2 of 2

As the 2003 HMRC advert featuring Adam Hart-Davis, a scientist, author, photographer, historian and broadcaster, noted, “tax doesn’t have to be taxing”. Of course, HMRC needs to impose duties and obligations to ensure compliance. But that doesn’t mean it is so mean as not to allow employers to give staff a little something without a tax bill.

In the first part of the series, we saw how employers can give perks to staff in relation to their welfare – partly for practical reasons but also in pursuit of public policy – such as helping them save for retirement. Now it’s time to look at the “fun” benefits that employers can give their employees without penalty.

Annual party

When inviting staff to any work event, attendees are unlikely to appreciate a tax bill at the end of the night. Fortunately, it is possible to treat staff to a party without a tax hangover, provided that a few conditions are met. These are:

  • The party must be an annual event, such as a Christmas or summer party, not a one-off celebration
  • The event must be available to all employees either at a given site or across the company
  • The cost per head, including VAT and any transport or accommodation, must not exceed £150

These rules are surprisingly flexible, and as long as the total cost per head during each event is under the £150 limit, it is possible to have more than one party. For example, a Christmas party costing £75 per head and a summer BBQ costing £50 a head would fall within the cost limit, as the sum of both comes under the £150 limit.

Trivial benefits

Employers can give tax-free gifts to employees on special occasions such as birthdays, weddings or Christmas by taking advantage of the trivial benefits rule

Employers can give tax-free gifts to employees on special occasions such as birthdays, weddings or Christmas by taking advantage of the trivial benefits rule. This provides a statutory exemption from income tax and national insurance for employees and employers provided that the:

  • Cost of the gift, including VAT, does not exceed £50 per employee
  • Gift is not cash or a voucher that can be exchanged for cash
  • Gift is not provided under a salary sacrifice or other contractual arrangement
  • Gift is not given in recognition of particular past or future services performed by the employer

While these conditions are usually straightforward, employers need to be aware this is an all-or-nothing exemption; if the cost of a gift exceeds £50, the full value is taxable under the usual benefit-in-kind rules.

Directors and office holders of close companies (companies owned and controlled by five or fewer individuals, as is the case in many family companies) and employees related to them also need to be extra careful as they are subject to a further restriction. For these individuals, the aggregate value of any trivial benefits received in any tax year must not exceed a cap of £300.

Long-service awards

Where employers have long-standing, valued staff, tax-free awards to mark long service can be made after a minimum of 20 years of service. As an allowed value of up to £50 per year of service is possible, there is the potential to make a gift of up to £1,000 in value to a staff member once they reach this milestone.

Long-service awards can be repeated once an employee has hit the 20-year mark, but only every 10 years after the first gift

Long-service awards can be repeated once an employee has hit the 20-year mark, but only every 10 years after the first gift. For example, if the staff member receives their first award after 22 years, they could receive a gift worth up to £1,100 at that point. They would next be able to qualify for a tax-free gift after 32 years, where the maximum allowed amount would be £1,600.

Crucially these awards cannot be cash; it must be something tangible and not something that can easily be exchanged for cash. (Vouchers that can be exchanged for goods are allowed, though.)

Employee suggestion schemes

There are two types of tax-free rewards possible for suggestion schemes, but these must be open to all staff.

The first allows a payment of up to £25 as an “encouragement” award for a suggestion of special merit. The second type applies to suggestions that have been implemented and have provided a financial benefit by creating or saving money for the business. The employee can receive an amount equal to either 50 percent of the first year’s financial savings or 10 percent of five years’ worth of financial savings, capped at £5,000.

However, to be eligible, suggestions must be outside the scope of normal duties and not made as part of a meeting held to generate suggestions.

Workplace canteen

An employer can provide free or subsidised meals to their employees tax-free, provided a few conditions are met. These are:

  • Free or subsidised meals are made available to all staff or all staff at a given site
  • The meals are provided on the employer’s premises or in a canteen (which can be off-site)
  • The meals are on a “reasonable” scale, so fine wines and cigars are out of scope
  • The meals are not provided as part of a salary sacrifice scheme

When the rules say “canteen”, they do mean an “in-house” restaurant – meals taken by staff in a nearby café or restaurant open to the public will not qualify. If the employer doesn’t have a canteen, leaving lunch bags for collection at reception, for example, would qualify for the exemption.

Staff training

Any training that is reasonably likely to be needed in a current or future role and is paid for by the employer does not count as a benefit. Employers can also pay for additional costs incurred as part of the training, such as travel, childcare and exams, without creating a tax cost for their staff.

Mobile phone

Mobile phones for work are a popular and common benefit, but there are a couple of conditions for these to be tax-free

Mobile phones for work are a popular and common benefit, but there are a couple of conditions for these to be tax-free. Firstly, an employer can provide only one SIM card and/or phone per employee, and the contract for the card or phone must be in the employer’s name. Provided these conditions are met, the rules are quite generous since there is no benefit-in-kind for any private use. 

If an employee would prefer to use their own phone, an employer can reimburse the costs of itemised business calls over the monthly tariff tax-free, but any further payments would create tax issues.

Again, the phone must not be provided as part of a salary sacrifice arrangement, otherwise the tax-free benefit is lost.

Mileage allowances for employees using their own car

Where an employee does business miles in their own car, they can be reimbursed tax-free using HMRC-approved mileage rates. For a car, these are currently 45p/mile for the first 10,000 miles and 25p/mile thereafter; there are separate rates for motorbikes or bicycles.

These statutory rates have not been updated in over a decade, so some employees may feel the rates do not reflect current motoring costs. However, if employers are prepared to pay more than 45p/mile, the employee will have to pay income tax and NIC on the amounts over the approved rates. The employer will also have NIC costs on the excess. Paying above the current limits, even with the best intentions, will create benefit-in-kind and tax costs for the employee and the employer, as well as significant extra administration.

Homeworking allowance

If an employer has staff who work from home for some or all of the week, it is possible to pay them a simple, flat-rate payment […] without creating a tax liability

If an employer has staff who work from home for some or all of the week, it is possible to pay them a simple, flat-rate payment of £6/week or £26/month without creating a tax liability. This is intended to cover the employee’s additional costs of working from home. However, to qualify for the payment, employees must be working regularly from home under a homeworking arrangement with their employer – taking work home in the evenings from time to time on an informal basis is not sufficient. The advantage of this flat-rate approach is that it is simple and there is no need for employees to keep records of the extra costs incurred from working at home.

Discounts

Lastly, an employer can provide its goods or services to staff at a discount without creating a benefit. This is true so long as the staff are asked to pay an amount that is at least equal to the cost of making or providing the item.

Summary

As noted over the two halves of this story, there are things that HMRC allows employers to do for staff which don’t involve a tax bill. However, there are rules to be followed if the allowances and exemptions are to apply. Good advice may be necessary.

Have you heard about our
Membership?

The number one resource for veterinary professionals.

From hundreds of CPD courses to clinical skills videos. There is something for everyone.

Discover more