Boosting staff morale with tax-free treats

Recent reports have shown that 49% of workers in the UK have quit their job due to poor working relationships with their boss. In light of these statistics, it’s clear that business owners need to do more to prioritise staff morale if they really want to attract and retain the best employees. 

With this in mind, company owners should consider getting a little more creative with staff incentives to show appreciation for their employees. The good news is the government are also encouraging business owners to get involved and there are some great tax-free options you could take advantage of right now!.

Trivial benefits and how to use them

 HMRC recognised that people in the workplace need to be appreciated by their employers, so they introduced something called ‘trivial benefits’ as a means to do so. These benefits can be anything from a bottle of prosecco to a gift voucher. The gift can take a variety of forms, as long as it doesn’t exceed a £50 limit per gift.

It is important to remember that if you’re the director of a close company, which means the firm has less than five ‘participators’, each director has an annual cap of no more than £300. Any benefit provided, that exceeds £50 in value and takes the annual total to more than £300, will be treated as a taxable benefit. Trivial benefits cannot be cash or vouchers exchangeable for cash and must not be a reward for performance or a part of an employee’s contract. 

Gifts for an occasion 

Whether it be a Christmas present, an Easter Egg or Valentine’s gift, treating employees is a great way to show workers how valued they are. As nice as these gifts are though, certain tax rules need to be followed:

  • Trivial benefits are gifts that cannot exceed £50, be part of an employment contract or be a reward. Just be careful to not exceed £50, as then the whole amount would be taxable as a benefit to the employee, just like the limit for entertainment expenses. 
  • If the benefit does not meet the above criteria, it will be classed as a taxable benefit, which means the employee would have to pay personal tax on the cash value and the employer would have to pay NIC via a P11d form.  
  • If employers give a restaurant or gift voucher, that will qualify provided it cannot be exchanged for cash. Otherwise, this would be regarded as a cash bonus, which is not tax free. 

Staff entertainment and events 

Another popular way for employers to treat their workforce is with a staff party and this will not be a taxable benefit provided this meets certain criteria:

  • The cost of the event can only include food, drink, entry fee, accommodation and the cost of getting home. 
  • The overall cost must not exceed £150 per attendee (including VAT). If there are multiple annual events, where the aggregate cost is £150 per attendee or less, the total will still be exempt from tax. It is important to note that this is not an allowance, it is a limit. If the cost of providing the event exceeds £150 per head, the full amount will be taxable. 
  • The event must be open to all employees within the business. It can be restricted in certain ways, such as specifically for all employees in one location. However, it cannot be restricted to a certain job role, such as just the management team.

If these conditions are met, then expenditures will qualify for corporation tax relief and VAT reclaim. Whether you choose to throw a summer event, a festive party, or both, the combined cost (per person) of all parties in a single year cannot exceed £150. You can also claim an additional £150 per person for a plus one for each employee, providing they are a family member or partner. 

There really are so many different ways you can utilise some of HMRC’s tax breaks to treat your staff during various times throughout the year. With evidence showing that a happy workforce is usually more loyal and more productive, there’s no time like the present to take advantage of trivial benefits.

James Foster, technical commercial manager at SJD Accountancy

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