With the cost of living crisis increasing and inflation driving bills up by the day, RJF Accounting has seen an increase in businesses seeking ways to help their employees without adding to the company’s or the employee’s tax burden. In this blog, we will explore the most tax-efficient methods you can use to reward or aid your staff without the additional tax liabilities that can come with it.

Encouragement Awards

If a staff member has gone above and beyond and you wish to reward them for this, you could give them an award of up to £25, providing that it meets the HMRC requirements.

Trivial Benefits

Non-cash items such as wine, hampers, gift cards or any other gift form can be awarded to an employee tax-free, providing they cannot be exchanged for actual cash. Providing you are not a director or a close family member of a director, there is no limit to the number of trivial benefits that can be awarded in a tax year. However, if you are a director or close relative, the limit is £300 per year.

Trivial benefits are probably the easiest and most effective ways to reward all employees without conditions being applied, albeit not in a cash way, but with generous gifts or vouchers.

Financial Benefit Awards

If an employee has made a suggestion that has saved the business money, you can reward them with a tax-free cash award of up to £5,000! There are strict criteria that need to be met for the higher awards, and it is best to speak to an accountant or HMRC to ensure all the rules are met before awarding an employee.

Long Service Award

You can reward staff members with up to £50 per year of service tax-free, providing the following conditions are met:

  • they’ve worked for you for at least 20 years
  • the award is worth less than £50 per year of service
  • you haven’t given them a long-service award in the last ten years

So if you have an employee that has worked for you for over 20 years and they have not had a long service award in the last ten years – you could grant them a gift of up to £1000!

Joining Incentive

If you are looking to attract the best talent to your business, you can give an incentive of up to £12,000 tax-free to attract them. The payment is not classed as a salary or dividend payment but is taxed under capital gains tax rules, of which everyone has a £12,000 tax-free allowance. As with everything tax-related, it is advisable to speak to an accountant before making the payment to ensure that all the rules are followed.

Relocation Expenses

The price of travel is becoming a heavy burden for some employees, and some employees could even be considering relocating closer to their workplace. You could award them a tax-free amount of up to £8,000 to help with their relocation costs if they live more than a reasonable commuting distance from your workplace.

Tax Efficient Methods to Reward Staff

Sadly, no HMRC-approved schemes can help with the rising energy costs or the weekly shop. However, with some careful planning, there are tax-free incentives you can give employees, which could help lift the burden. It is always advisable to check with a qualified accountant before advising or gifting anything to any employee to ensure that the tax benefits are applicable for both employee and employer so that you know it will not impact either in advance.

If you need advice about gifting employees and the most tax-efficient way, why not speak to the team here at RJF Accounting? We are on hand to help all shapes and sizes of businesses make the best decisions and stay on the right side of the HMRC rules and regulations.