Providing Employee Rewards

When an employee has been with a company for an extended period, many directors wish to reward their service with a gift. However, they must be wary of providing cash rewards, as these will be taxable. In this article, chartered accountant, MCC, explains how it is possible for you, as a director, to reward your employees without HMRC’s involvement.

Tax Free Gifts

HMRC allows tax free gifts to be provided to reward long-serving employees, as long as they meet certain criteria. The gift must be for twenty or more years of service, and must not cost the company more than £50 per year of service by the employee. The gift cannot take the form of cash, shares, cheques, or vouchers which can be redeemed for cash (they must be for services or goods). If you decide to make two or more gifts to the same employee, you can only do so tax free, and under the conditions listed above, if there is a gap of ten years between each gift.

Gifts Other Than Cash

Alongside vouchers for goods and services, corporeal property also qualifies as a tax free gift. Corporeal property is any property which has a tangible structure. This could, then, include gifts of the latest technology. Bear in mind, however, that the maximum value of such a gift can only be £50 multiplied by the number of years service provided by the employee. If the value of the gift exceeds this value, you must report this in a P11D form. A chartered accountant such as MCC can assist you with this. You may wish to provide your employee with a more personalised gift, or something that they would normally buy themselves. This might include a membership of some sort, for example, but this is up to you.

Further Rewards

You may also wish to draw upon the ‘trivial benefits’ tax exemption. Though, again, the value of the gift is restricted to £50, and it must be a non-cash benefit, it can be applied more than once. As a result, you could gift a £50 voucher once a month for a period of consecutive months. However, if the value exceeds £50, you will be taxed on the full amount, not just the excess.

You may also consider providing an employer’s pension contribution. If the employee is over 55, they can access 25% of the contribution value tax free. This is an excellent way of providing a ‘cash’ gift tax free, in that the employee would be able to take £1000 out of their pension pot tax free if you provided a contribution of £4000. If the employee is planning to make further contributions, you may wish to set up a separate pension scheme.

How Chartered Accountant, MCC Accountants Can Help You

If you are a company director looking for assistance with employee benefits and payroll duties, contact MCC Accountants. Call 0161 707 1500, email [email protected]or complete our contact form.