Rewarding staff and rewarding yourself, as a company director, is easy right? It’s all about being generous, giving out cash bonuses, shelling out on lavish parties, providing company cars. All of these are business expenses so are tax deductible as they go through the accounts, right? Unfortunately, it’s not so simple, all these additional rewards can end up being more expensive than first thought and, in particular, be a tricky tax minefield to navigate.

Employees are rewarded for doing their job via being paid a salary. This, as you know, has suffered tax on both the employee and employer (15.05% from April 2022) via Pay As You Earn (PAYE). A member of staff on a £50k salary would cost the business £57k including the employers national insurance.

Some reward packages may include other benefits (benefit-in-kind), such as:

• Company Car and Fuel
• Private Medical / Health / Life Insurance
• Cash bonus

These benefits are regarded as additional salary by HMRC, with the respective taxes (employee and employer) being owed to HMRC. These benefits are not run through payroll in the same way as salary, but rather acknowledged on another annual declaration form known as a P11D.

This form reports all additional benefits that you have provided staff throughout the year which have not been included in your real time PAYE reports. This allows HMRC to collect the taxes due on these untaxed benefits on both the employee (via adjustment to your tax code) and the employer (separate tax payment) annually.

Should you provide any of the above-mentioned benefits for you or your staff, you will need to file a P11D declaration each year (6th July) and pay over the appropriate taxes (by 22 July). Here at Hive, we provide this service to our clients, so if you need any advice, please get in touch.

Benefits outside the P11D regime
There are several benefits you can provide to staff that are fall outside of this and are tax free, these include:

• Trivial benefits (<£50 inc VAT)
• Staff entertaining (<£150 inc VAT per person)
• Provision of a mobile phone
• Interest free loan up to £10k
• Additional Holiday (birthday day off)

Trivial benefits are a fantastic way of rewarding staff, there are a few rules to follow to ensure they do not fall into the taxable arena we mentioned previously, including:

• Cost of providing the benefit is £50 or less (inc VAT)
• The benefit is not cash or a cash voucher (a voucher that can be exchanged for cash)
• The benefit is not contractual (or deemed contractual)
• The benefit does not relate to recognition of performance (related to work)
• Employer of a close company (a limited company with five or less shareholders) and the benefit is provided to a director / office holder of the company (or a family member) the exemption is capped at a total coat of £300 per tax year.

Meaning, the odd Amazon voucher, Wagamama’s voucher, or Nike Voucher under £50, for Easter (or a random Friday) would fall within the rules, making it tax free, no P11D reporting no tax for the business.

Directors, you can reward yourselves or your family members with 6 x £50 vouchers throughout the year. Not only is this rewarding yourself, but you will also save a smidge in corporation tax.

Staff entertaining is also a great way, a team summer BBQ or annual Christmas Party, and again so long as the following conditions are met, these also avoid falling taxable:

• Costs less than £150 or less per head
• Is annual in nature (Christmas Party / Summer BBQ)
• Is open to all your employees

Should the amount per head per year be greater than £150, then the whole amount falls taxable. This would, as the other benefits above, fall taxable on both the employee and employer and declared under P11D which would cost the business additional employers national insurance of 15.05% on the cost of the benefit provided.

To be even more generous, business can choose to also suffer the tax that would ordinarily fall taxable on the employee via a PAYE Settlement Agreement (PSA). A PSA is an agreement in place with HMRC to cover all tax and national insurance due on minor, irregular or impracticable expenses or benefits provided to employees. A PSA needs to be applied for by the 5th of July following the first tax year it applies. The information is then collated and submitted to HMRC by 31st July with payment being made on 22nd October.

As with all thing’s taxy, you can gain efficiencies by following some rules and still be seen as a great employer. Should you have any questions on staff gifts and benefits in kind, always check with your accountant prior to making to ensure what you are giving is tax efficient for you and the business.