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Coronavirus doesn’t have to ruin Christmas! Even though the normal office Christmas party might be banned, there are still ways to reward your employees for their hard work by giving them a tax-free gift in the form of a Benefit in Kind (BiK).

Gifting a Benefit in Kind to an employee

You can gift a Benefit in Kind (BiK) to your employees that won’t be subject to tax if:

  • The benefit is not cash or a cash voucher (these will be subject to tax)
  • The employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
  • The benefit is not provided in recognition of particular services performed by the employee as part of their role
  • The cost of providing the benefit doesn’t exceed £50 (including VAT)

You may wish to give your employees a present – a Christmas hamper, a bottle of wine, or a nice box of chocolates. As long as it costs less than £50 a head, it won’t be taxable. If the gift exceeds this value, it will need to be reported to HMRC and will be taxable under the normal Benefit in Kind rules.

For example, an employer awards a £60 John Lewis voucher to their employee for Christmas. The entire award would be subject to both Income Tax and NIC as the total cost exceeds the £50 limit. It is important for you to understand that it is not just the excess over £50, but the full amount.

There is no limit on the number of trivial benefits that you can provide, as long as it doesn’t exceed £50 each time. However, where you are a ‘close’ company and the benefit is provided to an individual who is a director or other office holder, the exemption is capped at a total cost of £300 for the tax year.

Your employees can save tax of £10 for basic rate taxpayers and £20 for higher rate taxpayers each time you, as their employer, give them a trivial benefit gift. Officers of a close company can save up to £135 in tax.

For more advice on how you can reward your employees in a tax-efficient way, contact Ann Bibby on abibby@ellacotts.co.uk or 01295 250401.