If your staff are performing exceptionally well it stands to reason that they deserve something special for a job well done. Therefore, it seems logical to show your appreciation for your staff’s efforts by showering them with gifts, hosting a summer party, or treating them to a day out.
However, business owners and management teams must be careful when rewarding their staff to comply with legislation and avoid unfairly favouring one employee or a particular department over another. To discover how you can reward your staff appropriately without the unwanted expense of paying taxes on their gifts, follow this guide.
Is it possible to give tax-free gifts to staff?
As an employer, you are expected to declare any expenses and benefits you provide to your employees to the government. You may also be required to pay taxes and make National Insurance contributions on those gifts so it’s important to make those checks with your accountant or financial advisor before signing off on any gifts.
To avoid your employees paying tax on the gifts you offer them, the total costs must be less than £300 for each member of staff. Similarly, if you are providing gift vouchers, say as a short-term performance incentive, these can be rewarded to staff as long as the value is less than £50.
Finally, you can also provide what is known as a trivial benefit, which also costs less than £50 per employee as long as it's not part of their contractual obligations and isn’t considered as part of any salary sacrifice they may be part of.
Do self-employed bosses have to follow the same rules?
While businesses must follow rules to ensure potential taxes and NI contributions are met, if you are self-employed then you may gift your employees slightly differently. There is no need to report, pay tax or National Insurance on personal gifts given to your employees.
Being a self-employed business owner often means having a smaller, closer-knit team compared to those in charge of a limited company. Because of this close-knit environment, you might find yourself more likely to present your staff with birthday, wedding, or festive gifts as you deem appropriate.
Rewarding your staff the right way
What makes a gift appropriate for your staff members is largely down to your discretion. Showering your staff with expensive gifts is a great way to improve their working experience and can potentially improve their loyalty or incentivise them to be more productive.
Going beyond the tax threshold can be a difficult issue to navigate. On one hand, you are providing employees with something they otherwise may not have but conversely, they are obligated to pay tax on that gift and this financial commitment may not be well received.
That doesn’t mean you can’t reward your staff, far from it, and there are many ways that employers can show their appreciation for a job well done without burdening people with unwarranted tax bills. Making the effort to show you value employees is a good way to retain talented staff and foster a happy working environment.
What is an acceptable employee gift?
Gifting your staff can be a great way to boost morale or help them to feel like their contribution is valued. But deciding what to reward them with poses a headache.
Firstly you want it to be less than £300 per employee to ensure it remains tax-free but also you don’t want to waste money on something they don’t like. Knowing your staff on a personal level isn’t always possible but there are still plenty of gifts you can provide staff to show your appreciation.
Here are some examples:
- Gift vouchers; a great way to provide an employee with additional funds to buy something they like
- Charitable donations and corporate volunteering schemes; discuss with your employees which non-profit organisations are close to their heart and make a donation on their behalf (or in their name); or invite them to volunteer day for a good cause
- Milestone gifts; if an employee hits a certain milestone they may be rewarded with some cufflinks, a watch or a commemorative pen
- Lunch on the boss; whether you take them out for a personal lunch or provide meals for the whole team, everyone loves a free lunch
- Wellbeing gifts; from contributing to their gym memberships to paying for a massage or trip to a spa, help staff look after their physical and mental wellbeing.
How to reward your team with a party
Similar to gifts, there is also a tax exemption when entertaining your staff with a party or event. Giving everyone the chance to let their hair down once in a while helps with team building, in particular boosting morale and collaboration.
Staff parties enjoy tax exemption if the following criteria are met:
- The event is an annual party or social occasion, for example, the Christmas do or your summer party
- All employees are invited, or the event is based in one location
- The cost does not surpass £150 per person (including VAT)
However, if there are multiple annual events then your company runs the risk of having to pay tax unless the total cost per head remains under £150 across both or multiple parties. If your events exceed the spending limit, you will have to report and pay tax on the full costs.
These benefits must then be reported on each employee’s Employee Benefits Form and the staff member will have to pay tax on the benefit while you as the employer will be charged national insurance. It is important to note that this £150 is not an allowance, so if your party costs £151 per head, your staff won’t just pay tax on the £1 but the whole £151.
Is it a risk to reward staff?
As a business owner, it can be a difficult decision to provide gifts to your staff. For instance, setting a precedent of gift-giving can be difficult to put an end to without upsetting the apple cart, so how and when you provide rewards across your company can play a role in your decision-making.
In addition to summer parties, picnics at work or team lunches, perhaps the most common office celebration in the UK is a Christmas party. This traditional event is a great way to end the year and celebrate the hard work everyone has put in over the last 12 months.
There is a balance to find between rewarding and keeping your staff engaged, managing expectations and ensuring spending is kept low, and below the gift and event limit. Finding the perfect balance can help you to achieve a collaborative and fun workforce. Making the effort to host a party this summer or offer gifts to talented teams can result in greater productivity and willingness from your employees to go the extra mile.
