Showing your appreciation of your staff’s efforts by means of gifts and benefits is good for morale, but you need to take care to do this in the most tax efficient way. If you go about it in the right way you can give tax free benefits to your staff and obtain tax relief for yourself.
This article explains the tax implications of different types of benefit and how to achieve what you want. If your circumstances are not covered here, or you want to arrange a PAYE settlement agreement please speak to Simon Kirkbride in our Penrith office or Brett Bennett in our Carlisle office and they will be happy to advise you.
A PAYE visit by the Taxman is never going to be a fun event, but sending him away empty handed might just make you smile!
Cash Bonuses – If you treat your staff to a cash bonus this must be put through the payroll and the appropriate tax and national insurance must be deducted. Otherwise we would all request our wages in cash if we were going to avoid paying any tax and national insurance!
Gifts – If you provide gifts to your staff such as a bottle of wine, chocolates, flowers etc there are no tax implications providing that the gift is considered to be ‘trivial’ by HMRC. However cash gifts and gift vouchers are excluded from this. There is no specific value that constitutes a ‘trivial’ gift, but it is thought to be up to approximately £40 - £50 per member of staff. If you have made gifts, or plan to make gifts to your staff in excess of this amount these gifts are likely to be taxable.
Entertainment – You can entertain your staff without causing them a tax liability. You can spend up to £150 per year per head without any tax implications. This limit will include the Christmas party, the summer barbeque and any other similar annual functions. Once you spend over £150 per year per head, the whole amount becomes taxable, not just the amount over £150 so be careful. The £150 limit also applies to guests attending, which makes the limit £300 if a member of staff brings their partner!
Staff Uniforms – If you provide your staff with a uniform, it must include a permanent employer logo or badge otherwise it may become taxable. Alternatively, you can agree with your employees that the uniforms are merely provided on loan. A written agreement is advisable and we can provide an example on request.
Lunchtime Meetings – If you provide food and drink to your staff over a lunchtime meeting, this may be taxable. For the lunch to be provided tax free, it must be available to all members of staff so make sure everyone receives a meeting invitation, or at the very least that the left over food is shared by everyone else.
Gift Vouchers – Providing gift vouchers to your staff is unfortunately taxable one way or another. You can either declare the vouchers on each employee’s form P11D so that they pay the associated tax and national insurance or you can set up a ‘PAYE Settlement Agreement’ with HMRC which will arrange for the tax and national insurance bill to be sent to the employer.
PAYE Settlement Agreements – Your staff will appreciate the nice Christmas hamper you gave them, or the £50 Marks & Spencer voucher you gifted to them. Something they will not appreciate quite as much however, is the tax bill from HMRC on their Christmas gift. Staff members will be sent the tax bill for any taxable gifts they receive, but if the employer would like to continue their generosity and foot the tax and national insurance bill themselves they can set up a PAYE Settlement Agreement with HMRC.
Cycle To Work Scheme – Why not encourage your staff to cycle to work? Not only will it keep them fit and healthy but it is also good for the environment. Even HMRC think this is a good idea and subsequently allow employers to provide their staff with bicycles – tax free! After 12 months, employees can purchase the bicycle from their employer at the ‘market value’ which can be anything as low as 5% of the original cost. Employees therefore acquire bicycles at bargain prices, with the employer claiming full tax relief on the net cost to them.
Childcare Vouchers – You can provide each member of staff with childcare vouchers worth up to £55 per week completely tax free. You can gift the vouchers instead of salary. You save the employer’s national insurance and your staff save the tax and employee’s national insurance. Everyone’s a winner! If your employees receive tax credits please ask us to calculate the position before making your decision as when there is an interaction with tax credits the position can be more complicated. Vouchers may be used for nurseries etc as well as for some out of school activities.
Mobile Phones – You may provide each member of staff with a mobile phone tax free. This could be used to reduce their salary by the appropriate amount then provide the phone and therefore save the associated tax and national insurance.
Computers / Blackberrys – You could also provide your staff with a computer or Blackberry. HMRC will not tax your staff providing that they are used mainly for business purposes with any private use being insignificant. This does not apply to mobile phones which can be provided tax free even when there is no business use.
For any further information, help or advice contact Simon Kirkbride in our Penrith office on 01768 864466 or Brett Bennett in our Carlisle office on 01228 530913.
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