We are coming up to the end of the year and many businesses will want to reward staff generously. The big question is always how can it be done tax efficiently, so the maximum reward reaches the recipient?
The good news is that there are plenty of ways you can do it.
Here are 4 ways you can actually reward staff completely tax-free:
Non-cash items (such as wine or hampers for example) worth up to £50 can be awarded to employees tax free. There is no limit on the number of items that can be awarded in a tax year, except for directors or their close family where there is a limit of £300 per year. Gift vouchers may qualify as a trivial benefit if they are not exchangeable for cash, however gift cards are more likely to meet the criteria. The key condition is that it can't be a reward for performance or work done - there must be another reason to give someone a gift.
You don’t have to report or pay tax on a non-cash award to an employee if all of the following apply:
- they’ve worked for you for at least 20 years
- the award is worth less than £50 per year of service
- you haven’t given them a long-service award in the last 10 years
For example, you can give a non-cash gift with a value of up to £1,000 for 20 years’ service.
To be exempt from tax, the event must comply with all the following:
- cost of £150 or less per head
- annual, “such as a party or summer barbecue”
- open to all your employees
The £150 limit is an annual limit so be careful not to exceed that in any one year.
There are 2 kinds of award:
- Encouragement awards - for good suggestions, or to reward your employees for special effort. Encouragement awards are exempt from tax and National Insurance up to £25.
- Financial benefit awards - for suggestions that will save or make your business money. Financial benefit awards can be exempt up to £5,000 subject to certain conditions, see www.gov.uk/expenses-and-benefits-employee-suggestion-schemes
The expense of these rewards should also qualify for a deduction for tax and VAT purposes in the business making the reward:
“Where an employer provides entertainment for the benefit of employees for example to reward them for good work or to maintain and improve staff morale, it does so wholly for business purposes. Thus the VAT incurred on entertainment for employees for example staff parties, team building exercises, staff outings and similar events is input tax and is not blocked from recovery.” (Source www.gov.uk)
In summary, there are a number of tax-free ways to provide employees with a gift or reward, providing you follow the conditions. These can be a tax and NI saving for both the employer and the employee – so worth taking advantage of! Please contact us if you have any questions.
Please note This article is provided for information only. 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 content can be accepted.