Unbelievably Christmas is only 80 days away. The festive season is a time to celebrate your year’s success and give back to your dedicated workforce. It’s common to gift a staff bonus, in the form of a cash payment added to their wages. However, did you know that there is a more cost effective way to treat your staff this Christmas? This is how to be a boss this Christmas and gift a tax free Christmas bonus.
How to Gift a Tax Free Christmas Bonus
The traditional staff bonus added to your employees’ pay packet is subject to tax. So while a staff bonus at Christmas time is always welcomed there is a more tax efficient way to gift this bonus. If you give goods with a cash value, these will also be subject to taxation that will reduce their value in most cases. Meaning that your staff still won’t benefit from the full value of your seasonal gift. So what’s the alternative?
If you choose to treat your staff with gift vouchers you avoid tax liability for the recipient and the business. Here is how to use the trivial benefits exemption to offer staff a valuable tax free Christmas bonus this year, including company directors. Gift vouchers are considered ‘trivial benefits’ under tax legislation. Trivial benefits are not subject to income tax like cash bonuses or goods. However there are some conditions to gifting trivial benefits.
- Each voucher must cost no more than a maximum of £50
- Must not be a cash voucher or exchangeable for cash
- Cannot be given as a performance incentive or alternative reward
- Cannot be exchanged as part of a salary sacrifice agreement
- The recipient must not be entitled to the voucher through the terms of their contract
If the voucher system you select meets these conditions, then not only is it a tax free option,
But the cost to the business is a tax deductible expense.
Make it Count
Under the trivial benefits exemption it doesn’t matter where you buy vouchers. So you can choose something that will have meaning for your staff, or buy from a business you want to support. It’s a good idea to think about how convenient it will be for your staff to use their tax free Christmas bonus. There aren’t any limits on how many vouchers you can give as a tax free Christmas bonus. There are very few restrictions to giving vouchers to employees. However there are some limitations on how many directors can receive them. There is an annual limit of £300 per tax year on the trivial benefits directors of companies can receive, if the company has five or fewer shareholders and this £300 limit extends to anyone who lives in the same household. Nonetheless, this means that directors can enjoy up to six £50 gift vouchers per year without incurring any additional tax liability. This is why vouchers that qualify for the trivial benefits exemption can be a good way to give bonuses throughout the year.
Plus because trivial benefits are discretionary, you do not have to give them to every employee. You can choose to give a tax free bonus to one employee, a group, or your entire staff. Just ensure that you cannot give vouchers under the trivial benefit scheme in recognition of hard work without incurring a tax liability – This may be more difficult to prove if you give them to only a few select recipients.
Prestige Business Management Works for You
Prestige Business Management can help you streamline your tax and ensure that your business is compliant, so you can save money and focus on your successful business. Find out what we can do for you. Call us today on 0203 773 2927.