The end-of-year holidays are the season for giving, and as employers, it is traditional to show appreciation to your employees at the end of the calendar year with a token of choice. But don’t whip out your own wallet! Why not get a gift that’s also tax free on the company?
A tax-free Christmas gift is sometimes referred to as trivial benefits, or benefits in kind - but in short, it’s the perk that the HMRC allows so employers can give something small, like food, chocolates, wine or even a turkey as an ‘allowable expense’. In short, it’s not declared, and you can offset it against your tax bill. It’s a super way to stretch that budget, because the fact is - cash isn’t kind.
While employees may be looking forward to the idea of a Christmas bonus, cash (or money added to payroll) is not considered to be exempt for taxation purposes and that means there is a tax burden. Either you pay the extra, or the employee won’t get the full amount!
To give an example, if you give £50 into a pay packet, this comes back after NI and tax as a paltry £36 for employees. Not very festive!
Instead, by saying yes to giving an approved trivial benefit, such as a gift card, which HMRC recognises as allowed, they get the value of the whole £50, without being subject to income tax or national insurance, with no need to declare it, print forms or worry.
If you’re already interested in calculating the costs of a Christmas benefit, click here to see our calculator!
But we are getting ahead of ourselves. Discover the history of tax-free turkeys, why we give gifts and more!
Trivial benefits then and now
Many of our holiday traditions were popularised in the Victorian era, and you can have a very fun deep dive in this BBC article which explains that several traditions were influenced by the likes of Prince Albert, Henry Cole, and Charles Dickens, from families gathering together, Christmas cards to parlour games, to mince pies and the Christmas turkey. (The next time you overindulge, say you are just remembering your ancestors.)
Then: the history of the free work turkey
How would you feel about getting a frozen turkey? A small handful of employers still do this - and while we know gifting turkeys is all but a thing of the past with very few companies distributing them directly, it’s surprising to read that ‘a turkey’ is still one of the holiday items specifically mentioned within HMRC guidance!
Why do we give turkeys at Christmas?
The origin of the turkey at Christmas being the meat of choice for the middle-class family and then as a gift for employees is also a Victorian throwback.
Most studies indicate that back then, meat was a once-a-week treat for many, commonly, a small joint of beef, pork or mutton or for many, liver, tongue or heart.
Everyone knows the story of Ebenezer Scrooge, so to bring it to life, remember when he buys the turkey for his poor hard working employee. What was that worth?
We know that the prize turkey ("twice the size of Tiny Tim", Scrooge tells us) cost him two sovereigns. For context, we also know that in that time, a standard job, let's pick a sandwich-board man (ie. a man paid to walk around with advertising boards on their back - in today’s terms, a social media exec) would get paid about 1 sovereign a day, so a turkey was a great gift and a generous one!
A turkey continued to be used as an employee gift for generous employers treating factory workers, and a New York Times article suggests even around 2 generations ago, turkeys were being given in trade sectors and unionised roles, alongside the extra treat of pay packets with added cash.
Do employees want a turkey?
HMRC still talks about turkeys, but today’s employees aren’t that keen, and turkeys have been on a decline as a gift for some time. In History Extra we learn that in the Second World War, new farming practices made the turkey dinner more affordable for everyone. But it’s not just cost or accessibility, it’s our tastes.
For the estimated 88 million people who are vegans, it’s a no-go, and what we do at the festive season has also changed. Many of us holiday at different locations or travel from work to our relatives or friends. A Nisbets.co.uk survey revealed that two million people in the UK plan to eat out on Christmas day. For employers, a physical turkey given isn’t the answer to make them feel rewarded and happy- but there is a way to reward employees, thank them and make them feel appreciated at Christmas - maximising that trivial benefit on a gift card!
Understanding trivial benefits
Trivial benefits or benefits in kind can be super small. Did you know that tea and coffee, if not provided for everyone as a general refreshment, might need to be factored into the overall tally of trivial benefits per employee that does receive them (HMRC Employment Income Manual)?
Seasonal preventative flu jabs are also considered a trivial benefit as are team bonding activities (those two things can’t be combined!)
There is some allowance for giving a small gift on special occasions, such as birthdays, work anniversaries, birth of children, amongst others - but most employers take full advantage of holiday gifting for employees, and Christmas is a great time.
Holiday gifting for employees: What are trivial benefits rules?
· The amount giftable before being subject to taxation for both the employer and the employee is £50* If the total of trivial benefits given to any one employee goes over this threshold, the entire amount is taxable.
· If you want to treat your employees with a bigger item or items, such as the popular Christmas hamper, you will need to consider its total cost or the average expenditure spread over all employees (≤ to the value of £50 per employee*).
· Any benefit given/received is not cash or a cash voucher.
· It cannot be a contractual obligation or payment for performance or job duties.
· If you are a limited or close company gifting for a director, your benefits cannot exceed £300 in the fiscal year.
These rules for exemption also apply by extension to any family member of an employee and any outsourced third-party services.
Read the HMRC’s EIM21864 for particular benefits and within it Section 323A ITEPA 2003 specifically for more about statutory exemptions you need to know.
In short, your trivial benefits can include things like Christmas parties, tickets to a sports event, or small gifts, like gift cards. If you are in doubt about what may and may not apply, here are some of the rules provided by the HMRC, but it is always recommended to check with the experts before forking out the cash for any trivial benefits.
How to use your trivial benefits
The top employee gift choice in 2023 is the versatile gift card. It may seem humble, but it is the most desired for every employee’s lifestyle. The right gift card can be exchanged at top retailers on the high street or online, or spent on food for the Christmas dinner - so you feel all festive, and they get the choice.
Food isn’t a bad choice - research shows that 35% of corporate gifts were food and beverages in the UK in 2021 - but with those varied diets and living citations, as well as the cost of living crisis biting, employers can give the gift of Christmas dinner without providing an actual turkey and giving choice.
Allied market Research recently ran a statistical analysis on gift cards as the primary currency for corporate gifting which has a compound annual growth rate (CAGR) of 17.7% from 2023 to 2032, and projected growth to $4.2 trillion by 2032.
Those are big numbers but they show the appetite is there.
The Lifestyle Gift Card is the personalised choice for you, the employer who wants to give their employees just what they want - the gift of choice.
Get in touch with us to discuss the versatility of our gift cards for corporate gifting and how we can help your company get all the benefits of improved employee engagement. We will help you capitalise on the ease of gift-giving with the freedom of choice for your employees and customers.
Disclaimer: This article does not presume to offer official financial advice, but we do want to provide food for thought 😉 We share links to government and legislative sources and to blogs from financial services. The best financial advice really should come from the experts.
* (the amount reflects legislation at the time of publishing the article)