Raise a Glass to this HMRC Loophole

At this time of year, as a business owner, you may well be thinking about how to give something back to your workforce before the festive season, of course, there’s the obligatory Office Party, but what else can you do to say “Thank You”?

Offering a bonus (whether it’s cash or perhaps a gift card) is a no-no as the good people at HMRC will add the necessary taxes to this, but there is a bit of a loophole in the system which allows you to spread some goodwill and it’s tax deductible.

The “trivial benefits exemption” means that as director of a limited company, you can purchase multiple gifts costing less than £50 each, up to a maximum of £300 in any one year. For example with all the great supermarket deals available on wine, champagne and Prosecco, you could buy 12 x £25 bottles of fizz to do with what you wish:

  • You could distribute them to employees, but not as a reward! It must not be for fulfilling an obligation or performance related, we’re sure you could come up with a good reason.
  • Keep them for yourself, again not as a reward but just because there isn’t a “y” in the month (you’re getting the idea here aren’t you).
  • Give them to a member of your household, for instance your Spouse, but if they are also a Company Director, whether the same company or not, they too benefit from the same loophole and remember this does not just relate to alcohol – as long as the item is under £50 it is fair game, so why not treat your stay at home children to something they would appreciate.

If you are Director of more than one limited company, it is perfectly acceptable to carry out this process for each entity, just remember to follow the rules and as we have mentioned, this benefit can be used to purchase whatever you choose as long as the criteria are met, so to recap, here are the rules.

  • The benefit must not exceed £50
  • It must not be cash or a cash voucher
  • The benefit must not be a contractual obligation or in recognition of a service performed; so do not buy yourself wine for doing a good job but buy it because the sun is shining (or some other ridiculous reason not connected to performance)
  • The total benefits are capped at £300 per year
  • All Directors can benefit
  • As a Director of a limited company you can benefit from each entity

As with anything tax related, we know that these can be tricky matters to handle, so if you unsure how to deal with them get in touch with us here at Magpie Accountancy.

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