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 taxpayer – 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 these rules are followed:
- It must cost £50 or less, per employee
- It cannot be cash or exchangeable for cash (i.e. a prepaid credit card)
- It cannot be given as a reward or incentive for services
- It must not be 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 so would fall within the above rule.
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, or anniversary (not work anniversaries though as this would be deemed a reward), housewarming, Easter, etc. Therefore, 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!
