Tax free perk before annual leave
It is possible to make small tax-free payments to employees, including directors, and this might be an appropriate time to make a small tax-free bonus in advance of the annual holidays.
Employers and employees don’t have to pay tax on such a benefit 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. HMRC describes these payments as a ‘trivial benefit’.
You don’t need to pay tax, National Insurance or need to let HMRC know of these benefits. Any benefits you make that don’t meet the above criteria you will have to pay tax on.
You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.
The only exception to the above is if the trivial benefits are made available as part of a formal salary sacrifice arrangement.