HMRC are not known for their generosity when it comes to allowing employers to reward their staff. Any rewards that included hard cash attracts income tax and thus depletes the value of any reward that the employee received. This also applies to the likes of vouchers, or anything that can be be redeemed in the place of cash.
However, there are a few concessions that HMRC make to allow you to say thank you to your staff for their outstanding service throughout the year, to reward their long service, or simply to wish them a merry Christmas.
To reward long service, you can present an employee with a gift if they have been with you 20 years or more. There is a restriction though, the gift can’t be more than £50 for each year of their service, so a 20 year service can glean no more than £1,000.
Suggestion scheme: as long as the scheme is ‘organised’ rather than simply a case of throwing ideas around in the pub after work it can net staff tax free rewards up to a maximum of £5,000. The actual figure should be based on a set percentage of the expected financial benefit of the suggestion to your business.
Encouragement awards: merit based rewards are included in the concessions. A cash payment is allowed but only up to £25.
Annual party: staff can party tax free – whether it be at a Christmas celebration, summer barbecue or awards night. Be aware though that the total cost of such get togethers can’t exceed £150 a year per person.
Promotional gifts: each member of staff is entitled to receive promotional gifts which your business might usually use to advertise a corporate message up to the value of £50 a year. You may have to use some discretion as to what is suitable to be given to staff.
Celebratory presents: in the strictest sense, all extras which employees receive, over and above their salaries and expenses, are subject to tax. However, HMRC does differentiate between gifts and benefits. Gifts might include flowers on the birth of a child, a bottle of wine to mark a birthday or a Christmas gift.
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