Following the budget, businesses are increasingly looking at ways to reward their team without attracting unnecessary tax burdens.
Fortunately, HMRC offers several tax-free perks that allow employers to treat their staff while staying on the right side of the law.
From Christmas parties to staff suggestion schemes, now is the perfect time to make use of these generous provisions.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Tax-free perks you can offer all of your staff
- How to reward your employees without falling foul of HMRC
Festive Cheer with a Tax-Free Christmas Party
One of the most well-known and popular perks is the staff Christmas party. Provided you stay within HMRC’s guidelines, it can be entirely tax-free.
You’re allowed to spend up to £150 per employee per year, inclusive of VAT, for entertainment.
This limit also extends to an additional £150 for a guest, such as a spouse or partner.
That means a total of £300 per employee with a guest, entirely deductible.
This allowance covers a wide range of activities: meals out, drinks, events like bowling or paddleboarding, even taxi fares to and from the venue.
You can host the party anywhere, including your own home, as long as the event is open to all staff.
Importantly, it includes directors and business owners as well, not just employees.
Be cautious about exceeding the £150 threshold. If the cost per head surpasses this amount, even by £1, the entire cost becomes a taxable benefit, not just the excess.
Keeping detailed receipts is key, and remember, this allowance applies across the whole year, so if you’ve had other staff events, the cumulative total still needs to stay within the £150 limit per head.
Using Trivial Benefits to Show Appreciation
Another effective way to reward employees is by giving trivial benefits of up to £50 per gift.
These must not be in the form of cash or be linked to contractual obligations or performance.
However, gift cards or vouchers (such as those for Amazon, Asda, or Selfridges) are acceptable.
For staff members (excluding directors of close companies), there’s no annual cap on how many trivial benefits you can provide.
If a benefit is given to a group, the cost can be averaged, ensuring each individual’s share does not exceed £50.
Directors of close companies are subject to a maximum annual limit of £300 worth of trivial benefits.
So that could be six £50 vouchers throughout the year.
These perks aren’t just tax-free for the employee, they’re also not subject to National Insurance, making them a cost-effective way to boost morale.
Remember, though, these must be genuine tokens of appreciation, not disguised salary or performance bonuses.
Rewarding Innovation Through Staff Suggestion Schemes
One of the lesser used but highly valuable HMRC schemes is the staff suggestion scheme.
These allow you to offer tax-free awards to employees for ideas that improve the business.
There are two types of awards:
- Encouragement Awards: Up to £25 tax-free, even if the suggestion isn’t implemented, but is deemed valuable.
- Financial Benefit Awards: If a suggestion is adopted and leads to savings or profits, the employee can be rewarded up to £5,000 tax-free, calculated as a percentage of the estimated benefit to the company.
To qualify, the scheme must be open to all staff and apply to ideas outside their usual job role.
For example, directors cannot reward themselves for strategic decisions that fall within their remit.
With the right implementation, this can be an excellent way to engage employees, drive innovation, and offer meaningful rewards: all while remaining HMRC-compliant.
Other Tax-Free Perks That Make a Big Difference
HMRC allows a wide range of tax-free benefits that can be built into your staff reward strategy.
These perks are not just for Christmas, but can be used throughout the year to boost retention, morale and tax efficiency.
Here is a comprehensive list of popular tax-free benefits:
- One mobile phone or personal digital assistant per employee
- Equipment such as laptops, computers or tablets essential for work
- A bicycle and approved safety equipment if used for qualifying journeys
- Refreshments at work, including breakfast and lunch (must be available to all staff on premises)
- Travel expenses to temporary workplaces
- Travel expenses for late-night working or failed car sharing (conditions apply)
- Subsistence costs while travelling for business
- Annual parties and functions within the £150 per head limit
- Trivial gifts and benefits of up to £50 per item, up to £300 per year for directors
- Round sum overnight allowances of up to £5
- Free parking at work
- Interest-free loans of up to £10,000
- Employer contributions to pensions or pension advice worth up to £500
- Recreational facilities for staff
- Training and course fees for job-related development
- £6 per week for homeworking costs
- Medical and optical check-ups for work-related assessments
- Pool cars available for general staff use
- Low benefit cost for low-emission cars or vans
- Company-provided vans for commuting
- A personal number plate on a work vehicle
- Relocation expenses when moving for work
- Reimbursed travel costs for relocating to the UK for work
- Share option schemes such as EMI for capital growth
- Suggestion scheme awards of £25 to £5,000
- Legal fees covered by the employer are tax free
- Workplace charging for electric vehicles
- Job-related accommodation
- Long service awards after 20 years service, £50 for each year
- Life assurance policy premiums for death benefits
- Premiums paid to qualifying overseas pensions (QROPS)
Each benefit has specific rules that must be followed to remain tax free, so professional advice is recommended when implementing them.
Summary
With the right planning, you can host a Christmas party, offer vouchers, run a staff suggestion scheme, and provide a range of tax-free perks without falling foul of HMRC.
Now is the perfect time to make the most of these incentives.
Whether you’re an employer looking to thank your team or a director wanting to maximise tax efficiency, the options are generous, if you follow the rules.
Get in touch with us at Tax Expert to ensure you’re making the most of these tax-free benefits and planning your staff rewards the smart way.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
