Your Tax Checklist: Gifts for Employees

What are the Tax implications when giving Corporate Gifts?

Who doesn’t love getting a gift? Managers know that buying gifts for employees is a great way to boost staff morale and encourage innovation at work.  However, did you know that any corporate gifts that your business gives to clients or staff may have HMRC tax implications for your company?

The taxman always wants his slice, but if you understand the HMRC rules you can minimise the costs or even avoid falling into the tax trap!

There are so many business benefits for giving corporate gifts to your clients and employees – from rewarding performance, motivating staff to getting your message in front of your key customers.

But in this article, we’re just focusing on the HMRC tax implications when giving your business gifts.

Here’s our quick guide to staying on the right side of the taxman.

HMRC Rules for Corporate Gifts for Clients

You can avoid paying any tax on your branded corporate gifts if its value is less than £50. For the purposes of HMRC you are entitled to give a business gift worth up to £50, to any one person in any tax year, but that corporate gift must carry a clear advert or logo for your business. So, whether it’s a branded promotional glass paperweight, crystal keyring or a desktop pen pot – the promotional branding has to be a key feature of the gift.

N.B This rule does not apply to food, alcoholic drink, tobacco or vouchers which are taxable on the full value of the gift.

If you go 1p over this £50 limit your corporate gift will be disallowed and be liable for tax on the full amount – so make sure your total cost includes gift wrapping and packaging too, as the taxman is very strict about this limit!

HMRC Rules for Employee Gifts

It’s worth remembering that all business gifts, including any Christmas Gifts for employees are classed as taxable benefits – with one important exception. When they are classed as ‘Trivial Gifts’ and only then, are they exempt from tax.

So, What is a Trivial Gift?

Well HMRC have some pretty strict rules when it comes to what they define as trivial. Basically it’s a payment by an employer to an employee that has a benefit of £50 or less and it must not be: –

  • Cash or a cash voucher (but the good news is gift vouchers for a shop are allowed)
  • A reward for work or performance by the employee e.g. sales incentive
  • In the terms of their contract

These payments are known as ‘trivial benefits’. Provided all of the above conditions are met, there is no need to pay tax, NIC or even to let HMRC know about them. Beware though as when the payment is even 1p in excess of £50, the exemption does not apply! And this is not a tax-free allowance that can be deducted from a higher sum, you have to pay tax on the full amount of the benefit.

What about Team Gifts or Rewards?

Sometimes it’s not clear exactly who has received how much benefit. A good example of this is, when employees are all taken out for a meal to celebrate a birthday. On these occasions, you have to work out the average cost per person from the total cost of the group treat. Your average is the relevant figure to use when assessing whether the exemption applies.

In addition, where payments are made to a shareholder or director, special rules apply to limit the overall amount of payments in the year to a maximum of £300.

The tax exemption can be used to cover such things as buying flowers for the birth of a new baby or perhaps more relevant for this time of year, a seasonal gift like a yummy Easter egg, but the key is that the gift is related to welfare and goodwill, not employment service or performance.

Knowledge is Power

So now you know the HMRC Tax rules you can order your corporate gifts for employees safe in the knowledge that you’re working in the most tax efficient way.

Call us to talk about your project and your budget per person –and we can work out the best options for you.

Sources:
HMRC.gov.uk
Many thanks to Money images for use of this image

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