We are often asked how do I avoid paying tax. Well HMRC allow you to give trivial benefits to your employees and directors free from tax or National Insurance if they meet certain criteria. It is important to make sure that you are aware of the conditions and record payments correctly.
Gift to Employee
In order not to pay tax or National Insurance contributions on a benefit for your employee the following must apply:
• the item has cost you no more than £50, inclusive VAT (there is no annual limit on the number of benefits)
• it cannot be in the form of cash or a cash voucher
• it is not a reward for work or performance
• it is not in the terms of their contract
If the cost of the benefit exceeds £50 then the full amount is taxable, not just the excess over £50.
Conditions for Gifts to Multiple Employees
When providing benefits to several members of staff, to be exempt from tax the cost per employee must again be no more than £50, inclusive of VAT.
The benefit is calculated by dividing the total spend by the number of employees to give the average cost per employee.
Again, if the cost of the benefit exceeds £50 then the full amount is taxable, not just the excess over £50.
You don’t have to inform HMRC or pay tax and National Insurance if you offer all your employees:
• free or subsidised lunch
• vouchers to cover the cost of these meals
However, this must be open to ALL employees and not just a select few for it to be exempt. Also, if you offer these meals or vouchers under salary sacrifice or flexible remuneration arrangements then they will NOT be exempt.
Gift Vouchers or Incentives as a Reward for Work
Rewards for work are taxable and need to be taxed through payroll or on the P11D form. They will also attract Class 1 National Insurance.
Directors can also receive trivial benefits that do not attract tax or National Insurance, provided that the value of the benefit does not exceed £50, inclusive of VAT. However, a director of a “close” company cannot receive trivial benefits worth more than £300 in a tax year. (A close company is a limited company that is run by 5 or fewer shareholders).
Directors can gift a family member their benefit, but the benefit will have to satisfy the conditions above and it will form part of the directors £300 annual allowance.
Salary Sacrifice Arrangements
If a trivial benefit is provided as part of a salary sacrifice arrangement then it will not be exempt. You will need to report on form P11D the higher of:
• the salary given up
• the cost to you of the trivial benefit
This rule does not apply to arrangements made before 6 April 2017.
Although these benefits do not have to be reported to HMRC you do have to keep accurate records of the benefits including:
• details of benefit
• any correspondence with HMRC
The S4B Team
S4B are a firm of Chartered Accountants and Profit Consultants in Maidenhead committed to keeping our clients up to date and compliant. If you would like one of the S4B team to contact you send an email to email@example.com or call us on 01628 623444.