An allowable expense is an essential cost which contributes to the running or function of a business. It’s incredibly useful to keep track of them, both to make sure you understand how your business is performing, but also to make sure you claim tax relief on their value before tax!
For some employers, the huge list of things you might want to claim could include gifts for employees. Wanting to treat your staff from time to time is a lovely quality to have as an employer, but a lot of business owners aren’t sure where this leaves them in terms of claiming the expense against tax.
We’ll explain the rules for claiming the cost of staff gifting.
Do employee gifts count as an allowable expense?
In some cases, yes, presents you give to your employees are an allowable expense and you can claim tax relief on the value before tax. The rules are quite complicated though, with the outcome depending on what the gift actually is, its value, and who you give it to.
HMRC publish a list of expenses and gifts, and what businesses must do for each.
Gifts classes as ‘trivial benefits’ are usually an allowable expense.
Does it count as a trivial benefit?
A gift or small gesture to an employee can be classed as a ‘trivial benefit’. Something qualifies as a trivial benefit when:
- It costs the business less than £50 (including VAT)
- It isn’t a direct reward for employee performance
- It isn’t included within the terms of their employment contract – i.e., not something they’re obliged to receive. This includes any salary sacrifice setups.
- It isn’t cash or a cash voucher (gift cards qualify as long as they aren’t exchangeable for cash)
Where a gift meets all of these criteria, you don’t have to let HMRC know about it, or pay any tax or National Insurance on it.
If your business is a close company (a limited company controlled by five or fewer individuals), then an overall spend on trivial benefits in any tax year is capped at £300 per employee.
What happens if you spend more than the threshold for a trivial benefit on an employee gift?
You can still gift your employee a voucher that’s worth more than £50, but it will become taxable to both you and the employee under the benefits in kind tax rules.
The rule was introduced to make sure employers aren’t tempted to swap an employee’s pay for something of the same value – because this could help them avoid the tax and National Insurance which would otherwise need to be paid on the salary. To minimise the risk of this happening, if you buy a gift that exceeds the trivial benefit threshold of £50:
- You – as the employer – will be required to pay National Insurance on it
- Your recipient – the employee – will also be required to pay Income Tax on the value of the gift
You’ll need to report the benefit using your payroll software each time you run payroll and PAYE.
Does a cash bonus count?
Cash rewarded to staff in the format of a bonus will be counted as additional earnings on top of their standard salary. That means that PAYE tax and National Insurance will need to be paid through payroll.
Ways to show staff you care without spending money
If you’re working with a shoestring budget, or you prefer to dodge the hassle of working out if a gift is going to be an allowable expense or not, consider a non-monetary gesture instead.
You don’t have to splash the cash to show employees you appreciate them and that you’re grateful for their hard work. Here are just a few great ways to treat your staff without having to spend (much) money:
- An extra day of paid leave
- Flexible working hours
- An early dart on Fridays during the summer months
- An office party in their honour
- A parking space reserved just for them
- A long lunch
- Organise a staff games day on site
- Additional training and development
- Sing their praises (recognition goes a long way)
Hope this article answers all of your queries on the topic of staff gifts and allowable expenses. Got some more tax-based questions on your mind? Let us know!
