When Giving and Receiving Come Together – Gifts To Employees Save Employers Tax
A new tax exemption may enable employers to give their staff ‘trivial benefits in kind’ and save themselves tax at the same time.
The new exemption for ‘Trivial Benefit in Kinds’ (BIKs) applies up to a limit of £50 per employee (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person).
To qualify for the exemption, the following conditions must be satisfied:
- Employees must not be entitled to the benefit as part of their contract (just because something is across the board or frequent, this does not make it contractual – for example birthday or Christmas gifts)
- It isn’t in the form of cash or a cash voucher (but gift vouchers eg for a shop, are allowed)
- There is no entitlement to the benefit as part of the employee’s contract
- It is not provided in recognition of a work-related service or employment duty
As the benefits will be tax-exempt, they will not be reportable on a P11D or be subject to Class 1a National Insurance. Nor will they count towards the employee’s taxable income. However, if any of the above conditions is not satisfied, then the benefit is taxed in the normal way, subject to any other exemptions or allowable deductions.
There is an opportunity here not only to provide trivial gifts to employees but also for directors of owner-managed companies to provide themselves with gifts, such as a case of wine or hamper at Christmas. Directors have the benefit of an increased limit of £300 per director, with no tax implications upon receipt.
Draft guidance has been published by HMRC, which provides a number of useful examples of how the limit can be used up. These include:
- Taking a group of employees out for a meal to celebrate a birthday
- Buying each employee a Christmas present
- Flowers on the birth of a new baby
- A summer garden party for employees.
Where partners or family members of employees are invited to functions, they can also share in the exemption.
Care will need to be taken to ensure that the benefit provided does not exceed the £50 limit (or an average of £50 per head) – otherwise the whole of the benefit provided will become taxable as a benefit in kind, not just the excess over £50.
The following are examples given by HMRC of benefits which will not qualify:
- Providing a working lunch for employees (because this is related to their employment)
- Gifts, incentives or events related to performance targets or results
- Gifts, incentives or events in relation to employment services eg team-building events
- Taxis when employees work late
- Entertaining and gifts
It should also be noted that the treatment of such benefits will remain the same for corporation tax purposes. So, for example, if the benefit is considered as entertaining, this will continue to be treated as disallowable for corporation tax.
For more information about this way to offer your employees and yourself some tax-efficient TLC, please contact our Head of Tax, Ann Bibby, in our Worcester office on 01905 744898 or email her at firstname.lastname@example.org