An allowable expense is considered an essential cost which contributes to the running of a business. As a result, allowable expenses are deducted from a business’s taxable profits, helping to reduce the amount of tax that a business pays.
What you might be wondering though, is whether or not gifts to employees fall under the allowable expense umbrella. 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 on where this leaves them standing in terms of tax implications.
Do employee gifts count as an allowable expense?
If you’re a self-employed sole trader, then you aren’t required to report or pay tax or National Insurance on any personal gifts given to your staff (such as birthday presents or new baby gifts). The rules are a bit different for businesses though, with the outcome depending on what the gift actually is.
HMRC publish a list of expenses and gifts, and what businesses must do for each.
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.
If you’re providing trivial benefits as part of a salary sacrifice arrangement, you will need to report this to HMRC using a P11D form. This reports the higher amount of either the salary given up, or how much the trivial benefit costs you. The amounts reported on a P11D are subject to tax and NI rules, for both the employer and the employee.
What happens if you spend more than £50 on an employee gift?
You can still gift your employee a voucher that’s worth more than £50, but you must report this to HMRC using a P11D form.
- 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 tax as the gift will be classed as a taxable benefit.
You must also report any food or grocery-based gifts that don’t have a resale value.
Does a cash bonus count?
Cash that is 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!