Many employers may be keen to give employees a bonus at Christmas, but there are real payroll implications of giving a cash bonus versus a gift card, or what's known as a trivial benefit.
The cost of living crisis, alongside recruitment and retention issues mean that this winter is definitely a time to look more closely at how trivial benefits can help you to box clever, as you consider how to thank your staff. A cash gift which gives the employee a net £50 would be costly at £84 for a basic rate taxpayer and £98 for a higher rate taxpayer.
Gift card If the gift card qualifies as a trivial benefit, it can be given tax and NI free which could save your business up to £48.10 per £50 card!
The tax and NI implications of a gift card depend on the type and value of the card and what it’s been given to the employee for. How does it qualify as a trivial benefit? To qualify as a trivial benefit, the gift card must :-
cost you £50 or less per employee
cannot be cash or exchangeable for cash
cannot be given as a reward or incentive for services
isn't mentioned in a contract as a perk; i.e. it’s not a benefit in kind
Giving an employee a £50 gift card for Christmas would not be classed as a reward or incentive so would fall within the rules. There are plenty of other occasions when you could give employees a gift card that wouldn’t count as a reward for services such as a birthday, wedding, new baby, anniversary (not work anniversaries though as this would be deemed a reward), housewarming, Easter, etc. Don’t get caught out with cash-based gift cards, e.g. a prepaid Mastercard, as these fall foul of the “cannot be exchangeable for cash” rule. Make sure the gift card doesn’t go over £50 even by 1p. If it does, tax and NI will be due on the full amount not just the amount over £50. How many gift cards per year? For employees who are not directors there is no limit on how many £50 gift cards your business can give them in a tax year. But if it’s too often HMRC would view this as suspicious, and it would be hard to justify that the gift card wasn’t part of a reward. For directors of close companies, the maximum number of gift cards they can receive tax and NI free in a tax year is six, i.e. £300. Potential problem with top-up cards HMRC has recently drawn attention to a potential problem that may arise where an employer tops up a gift card with £50 several times per year. Rather than considering each top-up in isolation, HMRC’s approach is to treat the gift card as a single benefit and look at the total amount put on the gift card in the tax year. If this is more than £50, its view is that the trivial benefits exemption does not apply, so avoid topping up gift cards and provide employees with separate gift cards for each occasion. Changing the nature of the gift card each time further supports the view that each benefit stands alone. Cash gift Let’s say you want to give an employee a £50 bonus at Christmas. If you want the employee to receive a net £50, i.e. after tax and NI, then this will actually cost the company £83.68 for a basic rate taxpayer: £50 grossed up is £73.53 (PAYE at 20% = £14.71 and employees’ NI at 12% = £8.82) and then there’s 13.8% employers’ NI of £10.15 on top. For a higher rate taxpayer, the cost would be £98.10 - almost double the value of the gift! Another seasonal example of where trivial benefits could be used, is if the employer arranges for flu vaccinations in the workplace or provides a voucher for staff to obtain a vaccine at a pharmacy, the cost would be tax exempt as it would fall under the trivial benefit rules. It needs to be noted that this does not work where staff arrange their own vaccine and are reimbursed the cost. Reimbursing the cost does not fall within the trivial benefit rules.