Staff Entertainment, gifts and trivial benefits
Staff entertainment
Staff are taxed on food and drink provided outside the normal course of business, with the value of the entertainment reported on the P11D form at year-end. Employees pay income tax on the benefit (via a tax code adjustment), and employers pay National Insurance Contributions (NIC) on the total value.
However, if the entertainment qualifies as a trivial benefit (within the thresholds outlined below), it is neither reportable nor taxable.
Gifts to Employees
Christmas gifts paid in cash to employees are generally taxable, as are vouchers that can be spent in one or more shops, unless they fall within the trivial benefits rules (outlined below). However, if employees are given seasonal presents such as a turkey, a bottle of wine, or a box of chocolates, and the cost is reasonable, HM Revenue & Customs (HMRC) will not seek to tax these items, provided they meet the conditions of the trivial benefits rules.
Trivial benefits
The trivial benefit rules let employers provide employees with small, non-cash perks free of tax and National Insurance Contributions (NIC), provided they meet these conditions:
- The benefit costs £50 or less per person.
- It is not a reward for services or contractual in any way.
- It is not cash or a voucher exchangeable for cash (e.g., gift cards are generally fine, but avoid cash-like vouchers).
For directors and their families, there is an annual limit of £300 for trivial benefits, which includes all benefits provided to the director and their family members. While employers can provide multiple £50 gifts, frequent gifting could be seen as a reward for services, breaching the rules.
Practical Examples:
- Acceptable: A team meal costing £48 per person to celebrate birthdays is exempt since it’s under the £50 limit.
- Non-Exempt: A gift card topped up eight times at £10 each totals £80, exceeding the £50 limit and is taxable.
- Director Gifts: A director receiving six £50 gift vouchers over the year (totaling £300) is within the rules, but exceeding this amount makes the benefit taxable.
When the Rules Don’t Apply:
- Bulk Gifts: If gifts (e.g., turkeys or wine) cost more than £50 for some employees or directors, only the lower-cost items are exempt.
- Recurring Perks: Ongoing benefits like regular gym memberships or allowances may exceed the limit if their total cost accumulates over time.
Trivial benefits are a cost-effective way to show appreciation, but employers should monitor costs, ensure compliance, and avoid providing benefits tied to performance or contractual obligations.