As a small business owner, you might be thinking about rewarding your employees with gifts, especially during the festive season. But are there tax implications to consider?

In the world of accounting, employee gifts are often referred to as 'trivial benefits'. These can include items like flowers, chocolates, or tickets to a sporting event. To qualify as a trivial benefit under HMRC rules, certain criteria must be met. Let’s take a closer look.

What Are Trivial Benefits?

To ensure your gifts qualify as trivial benefits, and therefore avoid any tax implications—they must meet four specific criteria:

1. Cost:
   • The gift must cost £50 or less per employee, inclusive of VAT.
2. Type:
   • Gifts cannot be cash or cash equivalents (e.g., vouchers that can be converted into cash). However, gift cards that meet the other criteria are allowed.
3. Purpose:
   • The gift cannot be performance-related or a reward for work. It must be outside the terms of any contract and truly a 'gift'.
4. Occasion:
   • Gifts should be irregular and ideally spread out over the year. They should not be a regular feature of your employee benefits.

What Are the Tax Implications?

Gifting your employees under the trivial benefits rules can be a win-win situation. Here’s why:

• For the Business:
  • These expenses are fully deductible for Corporation Tax purposes, reducing your overall tax liability.
  • VAT on the gifts can also be reclaimed, providing further financial benefit.
• For Employees:
  • There are no Income Tax or National Insurance implications for the employee, meaning they receive the gift tax-free.

Examples of Trivial Benefits

Here are some ideas for gifts that meet HMRC’s criteria:

• A bouquet of flowers for a birthday.
• A box of chocolates during the festive season.
• Tickets to a local event or cinema.

Get the Business You Want

Giving gifts is a fantastic way to show your appreciation for your team’s hard work throughout the year. By understanding and following HMRC’s rules for trivial benefits, you can ensure your generosity benefits both your employees and your business.

If you’re planning to give gifts, either during the festive season or throughout the year, we’d be delighted to help you navigate the tax rules.

At Carthy Accountants, we’re Helping You Get the Business You Want. Get in touch today!