Gift Vouchers Tax Implications for UK Employers and Directors
Many of you are considering rewarding yourselves, as directors, and your dedicated employees with gift vouchers. While gift vouchers can be a great morale booster, it's essential to understand gift vouchers’ tax implications under current HMRC rules.
It’s crucial to understand the tax implications of such gifts to ensure compliance with HMRC regulations and to optimise tax efficiency for both your company and its recipients.
Tax Implications for Employees: Trivial or Taxable?
Giving gift vouchers to staff may fall under HMRC’s “trivial benefits” rules if structured correctly.
What Are Trivial Benefits?
According to HMRC, gift vouchers for employees can qualify as trivial benefits if:
The value is £50 or less, including VAT
It is not cash or a cash voucher
It is not a reward for work or performance
It is not written into the employee's contract
If all conditions are met, the gift vouchers for employees have minimal tax implications, no tax or National Insurance is due, and you don’t need to report the gift.
Example: Celebrating an Employee's Birthday
Imagine that your company wishes to mark an employee's birthday by giving them a gift voucher. To ensure this gesture falls under the category of a trivial benefit, thus making it tax-exempt, the company must adhere to the following HMRC criteria:
Cost: The cost of the gift voucher does not exceed £50 (including VAT). This cap is per benefit (gift), not per year, for each employee.
Not Cash or a Cash Voucher: The gift is not given in the form of cash or a cash voucher. A gift voucher that is non-exchangeable for cash but can be used in specific stores meets this criterion. (A jungle-based retailer, for instance 😁)
Not a Reward for Work: The gift voucher is not given as a reward for the employee’s work or performance. In this case, the voucher is given purely in recognition of your employee's birthday, which is unrelated to their job performance.
Not in the Terms of the Contract: The benefit is not stipulated in the employee’s contract or any other obligatory terms.
This also answers the common question: "Are gift vouchers taxable in the UK?". If trivial, they’re not.
By giving a gift voucher under these circumstances, the company effectively uses the trivial benefits exemption to provide a tax-efficient token of appreciation. The employee (hopefully) enjoys the gesture without any tax implications, and the company does not have to report this benefit to HMRC or pay any additional taxes on it.
What Are Non-Trivial Benefits?
If the gift voucher
Exceeds £50 in value, or
Does not meet any one of the HMRC conditions for trivial benefits
Then it is considered a non-trivial benefit. In such cases, the value of the gift is subject to Income Tax and National Insurance and must be reported via the employee’s P11D form or through your payroll.
To avoid passing the tax burden on to the employee, your company can enter into a PAYE Settlement Agreement (PSA) with HMRC, allowing the business to pay the tax on the employee’s behalf.
Tax Implications for Directors: Trivial Benefits with Limits
The treatment of gift vouchers for directors, particularly in small companies where directors are also shareholders, can be more complex due to their dual roles.
Directors of close companies (with five or fewer shareholders) can also benefit from trivial gifts, but with more restrictions.
Annual Cap of £300
Directors can receive up to £300 per tax year in trivial benefits. Each gift still needs to meet the standard trivial benefit criteria (i.e., £50 or less, not work-related, etc.).
Example: Project Appreciation Voucher
Say your director receives a £40 voucher to celebrate a successful project. If this is the only benefit given in the year and it meets all conditions, it qualifies as trivial — no reporting or tax required.
This clarifies the recurring query: "Are gift cards taxable?". For directors, only if the trivial conditions or annual caps are exceeded.
Exceeding Limits: Non-Trivial Vouchers
If the £50 per gift or £300 annual cap is exceeded, the gift is considered taxable income. This must be included in the director's Self-Assessment return and may attract additional Income Tax or National Insurance, depending on how it's paid.
Compliance: Record-Keeping and HMRC Requirements
It's imperative to keep accurate records of all gifts provided to ensure compliance with HMRC regulations.
Proper documentation ensures full HMRC compliance. Keep a clear record of:
Date of the gift
Type of voucher
Value of the gift
Recipient
Reason for the gift
We will need to register the company for employee benefits to be able to report these benefits through P11D. Each employee and director will receive a P11D with their P60 at the end of the tax year, which needs to be included in the self-assessment tax return.
Make Gift Vouchers Work for You Without Any Tax Surprises
When used correctly, gift vouchers can be a powerful, tax-efficient tool to reward employees and directors. But gift vouchers' tax implications can be more complex than they appear, with rules around value limits, contract terms, and reporting requirements that many businesses overlook.
At Anlo Financial Solutions, we take the guesswork out of compliance. Whether you're giving birthday vouchers to staff or appreciation gifts to directors, we’ll guide you through every step to stay HMRC-compliant and tax-efficient.
Ready to simplify your benefits strategy? Contact us today for expert support tailored to your business.