Are Gift Cards for Employees Tax Deductible?

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You may be thinking to yourself “do you have to pay tax on gift cards for your employees” and if not “I may be able to save my company some money”. The answer is that if they follow the rules on the “Trivial Benefit” scheme introduced by the government, then no you don’t need to pay tax and yes you could save your company some money. We’ll talk more about the “Trivial Benefit” scheme as well as what are gift cards for employees during this article and you can trust us here at Ovation Incentives as we have over 20 years of experience in this field, so please read on.

What are Gift Cards for Employees?

Here we will look at what gift cards for employees are and some of the key pros as to why you should be looking into them as a way of rewarding your employees. In simple terms they are a cost effective way to help motivate staff, but in reality there are a lot more advantages to them than this. They are very easy to organise and can be personalised to each employee if needed, another pro is that they can potentially be sent electronically meaning that there is no impact to the environment….as long as they are not printed out.

Another big plus point for the gift cards is that they can be very flexible and can often be redeemed at a number if retailers given your employees the choice and freedom to redeem them where they want to. However please always remember to check that these follow the governments criteria for the trivial benefit scheme so that there are no hidden tax implications.

Tax Free Gifts to Employees

We know that everyone likes a gift but not when there is a hidden tax associated to it, so let’s look at the criteria for the trivial benefit scheme introduced by the government and brought into effect on 6th April 2016

You don’t have to pay tax on a benefit for your employee if all of the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know. However, if the gift card exceeds £50 then the whole value of the gift card is taxable, it should also be noted that if there are a number of gift cards presented to a number of employees and it is impractical to work out the total of each card the average total of the cards must be under £50. There is no actual limit to the number of gift cards that use the trivial benefit criteria for one employee over a year, there are instances where multiple gift cards been issued considered a single gift and therefore follows the criteria of not exceeding £50. One last thing to note is that there is another limit that applies to directors of ‘close companies’ (A close company is a limited company that’s run by 5 or fewer shareholders) there is a threshold that must not exceed £300 in a tax year.

Are Gift Cards for Employees a Trivial Benefit?

Gift cards for employees are considered a trivial benefit if they follow the criteria set out by the government and thus would be classed as tax free. The main points to remember are that the gift card must cost less that £50 including VAT, that it is not cash or a voucher that can be redeemed for cash such as a prepaid MasterCard, is not classed as a reward or an incentive and is not mentioned in the employee’s contract as a perk such as a benefit in kind. As long as the above are all followed then the gift card would be classed as a trivial benefit. It is also worth remembering that if the gift card is more than £50 then the whole value is taxable and not just the amount over the £50 threshold.

How Many Gift Cards Can be Given in a Year?

You may now be wondering if you can give your employee a gift card every day of the year and while technically, as long you are following the trivial benefit criteria, you could do this….. it is not a good idea. This is because HMRC would most likely view this as very suspicious behaviour and you would have to explain this course of action and prove it wasn’t a reward or a benefit in kind.

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So in summary should you be taking advantage of the trivial benefit scheme to help motivate your employees – absolutely you should as long as you remember to make sure that they do meet the criteria and should not be more than £50 including VAT.

If you are looking at gift cards as a way to motivate your employees then when not book a demo with us here