Small Business Employees and Company Directors - Tax Free Benefit

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Tim Lwin
As the festive season is upon us, trivial benefits are a great way that employers can show their appreciation for staff, whilst also being tax free. This will be free of tax and the company will get a tax deduction if all the following conditions apply:
• The cost of providing the benefit does not exceed: £50 (including VAT) (or the average cost per employee if a benefit is provided to a group of employees) if this goes above £50 – all the amount is taxable not just the excess.
• The benefit is not cash or a cash voucher. Gift cards would qualify as long as they are not exchangeable for cash;
• The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements);
• The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).
The tax free, tax deductible amount is up to £50 per transaction per employee and there is no annual limit. Provided all the above is met, it can be used as gifts for employees for birthdays, anniversaries and festive gifts.
For Limited Company Directors the annual limit is restricted to £300 per tax year. All the above conditions still apply but the tax free, tax deductible amount extends to director’s families and their household. The annual £300 limit in £50 tranches over the year can be used to buy gifts for family members at birthdays, anniversaries and Christmas.
Examples from HMRC guidance include:
Company L provides a director and the director’s daughter with a turkey each at Christmas. Each turkey costs £30. The daughter is not an employee or office holder of company L. The total cost of £60 counts towards the director’s annual exempt amount.
Company M provides one of its directors with a bottle of wine on her birthday. It also provides a bottle of wine to the director’s husband who is an employee of company M. Each bottle of wine cost £20. The £20 cost of each bottle counts towards the director’s and the employee’s personal annual exempt amounts.
Company N provides gift tokens costing £30 each to two of its directors, who are husband and wife, and to their son on their birthdays. The son is not an employee or office holder of company N and so the cost of his gift token is apportioned between the directors on an equal basis.
For further information please contact Tim Lwin, Tax Partner, Howard Worth Accountants, Cheshire Tel: 01606 369000

Tags: UK200

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