If you decide to give an employee a £50 cash bonus to help with the rising costs of living or a treat for the festive period, by the time this has been grossed up for Tax and National Insurance (NI), it will cost the company £83.68 for a basic rate taxpayer and £98.10 for a higher rate tax payer – almost double the value of the gift!

To avoid this costly PAYE headache, give a gift card instead.  It will qualify as a trivial benefit if:

  • It costs £50 or less, per employee
  • It’s not cash or exchangeable for cash (i.e. a prepaid credit card)
  • It’s not given as a reward or incentive for services
  • It’s not mentioned in an employee’s contract as a perk (i.e. it’s not a benefit in kind).

Giving an employee a £50 gift card would not be classed as a reward or incentive!

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 their birthday, wedding, new baby, anniversary (not work anniversaries though as this would be deemed a reward), housewarming, Easter, etc.  Also, for employees who are not Directors, there is no limit on how many gift cards your business can give in a year (although if it’s too often, HMRC might get suspicious.  Also avoid topping up the same card – give separate gift cards for each occasion).

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).

It is important that the gift card doesn’t exceed £50 by a penny otherwise Tax and NI will be due on the full amount, not just the amount over £50.

Go on, you know you want to – your employees deserve it!

And don’t forget the cost of staff parties and the annual £150 per employee limit, more information on this can be found in our spotlight report ‘Tax and your work Christmas party’.