Exempt from tax
Certain gifts are exempt from any taxation as long as they meet certain criteria. This will avoid the need to report them as a taxable benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:
- The cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees)
- The benefit is not cash or a cash voucher
- The employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice)
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
- Where the employer is a 'close' company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.
Further details on how the exemption works, including family member situations, are contained in the HMRC manual.
No more than £50
One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. HMRC examples consider various gifts including turkeys, bottles of wine and gift vouchers.
If an employer wishes to provide anything over the above then they will have two options in terms of reporting this to HMRC.
- P11D – at the tax year end a P11D will need to be completed for all employees who received taxable benefits and employers national insurance paid at a rate of 13.8%. The employee will also have the gross cost taken out of their personal allowance causing them to be taxed on the gift at their marginal rate of tax. The P11D has to be completed by July.
- PSA agreement – you can apply to HMRC for a PSA agreement. If this is accepted then the employer will pay all of the tax and national insurance do on the gifts, with no effect to the employee. The PSA has to be completed by October.