As of the 6th April 2016, HMRC handed out a gift that could put a smile on your employee’s faces. The new guidelines relating to ‘tax exemption for trivial benefits in kind’ (a bit of a mouthful) means that you can now provide employees with a little something extra – and reduce their tax bill in the process. Let’s take a look at these new rules and what this could mean for your business.
A £50 Gift
The new changes mean that you will now be able to reward your employees with a £50 gift without incurring a tax charge. Both for the staff member and to your company! The gift must be no more than £50, and it cannot be a performance related bonus. This means that the bottle of wine you hand over at Christmas will now not incur any taxes, as it will not be classed as a ‘benefit’. There are some strict rules regarding what is exempt, including:
- The total amount of the gift must come under £50 including VAT. You cannot buy a £60 gift and disallow the first £50 like an allowance. Any gift over £50 will be taxable.
- You cannot hand over cash or cash vouchers.
- The gift cannot be given to an employee as a bonus or benefit for work-related performance. For example, you cannot buy them a bottle of wine for hitting their sales targets. Well, you can, it just won’t be exempt from tax.
Annual Cap for Directors and Families
Of course, a change like this could lead to some business owners taking advantage of the system. That is why the Government have also introduced a cap for directors and their families, of £300 in the tax year. You can buy tax-free gifts from the company, for directors and their families, up to £50 still. However, the total amount within the tax year must not exceed £300. That’s still six gifts if you hit the limit each time! If a present is purchased for a spouse who is a partner in the business, then this cap is raised to £600.
What This Means for Your Business
If used correctly then the new ‘tax exemption for trivial benefits in kind’ rules could be useful for you and your business! Not only can you boost staff morale with regular tax-free gifts, but you can also cut down on administrative costs too. These benefits will no longer need to be reported on P11Ds or Pay As You Earn Settlement Agreements (PSAs) at the end of every tax year. Instead, you now have the stress-free option of providing your employees with gifts without filling out all of the paperwork. And, without them having to pay tax or National Insurance Contributions on them either.
Talk to K A Farr & Co about how these changes can have a positive impact on your business, and start taking advantage of the exemptions straight away. As long as you follow the rules laid out above then, there should be no issues. Just double check anything you’re not sure about KAFarr & Co before you start spreading the Christmas cheer.