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Rewarding Employees how to reduce the tax burden

Now that Christmas is over Employers must navigate seasonal tax issues for compliance and optimal tax efficiency. Here is a summary of some of the benefits you can provide to employees

  • Utilise trivial benefits, annual events exemption, and other avenues for tax-efficient employee rewards.

  • Create a package to ease financial burden, including employee parking, assistance programs, staff discounts, birthday vouchers, Christmas gifts, and additional homeworking costs.

  • Trivial benefits exemption applies if the cost does not exceed £50.

  • Criteria for trivial benefits include non-cash nature, no salary sacrifice, and not a reward for services.

  • HMRC may challenge regular trivial benefits creating a 'legitimate expectation.'

  • Gifts over £50 require inclusion in a PAYE Settlement Agreement.

  • Staff Christmas parties are considered taxable, but HMRC's annual events exemption can apply.

  • Conditions for exemption: annual event, open to all employees, and costs less than £150 per head.

  • Exemption can be spread over different events but must not exceed £150 per head in total.

  • Explore creative ways to support employees throughout the year, such as car parking, staff discounts, and more.

  • Providing food at work offers tax advantages over cash payments.

  • This provides more value for the financial investment involved than one-off cash payments, as money spent on food for employees is not subject to tax and NICs. Various criteria must be met to avoid tax and NICs deductions on food at work. For every £100 pay given to an employee, it will be subject to tax and NICs. If £100 is spent on food for employees, it will not be subject to any such deductions if the relevant criteria are met.

  • Subsidised meals on the employer’s premises or in a canteen can be provided for free, without any tax implications. That is provided the following conditions are met: All employees must have the option of a free meal (whether or not they choose to take up the offer). The meals must be available to all employees at a particular site (but do not have to be available at all the employer’s sites). The meals must be provided in a canteen (could be off-site) or on-site (for example, the kitchen or at reception). Meals must be on a ‘reasonable’ scale. Meals cannot be provided in conjunction with a salary sacrifice arrangement or flexible remuneration arrangements.

  • Employers can provide tax-free loans up to £10,000, aiding employees with various needs.

  • Salary sacrifice schemes offer tax-efficient benefits, including electric vehicle schemes.

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