Rewarding faithful employees

Michael Brookes amp; Co Chartered Accountants is a medium sized Chartered Accountancy Firm located in Middelton, established in 1980. In 2000 they extended their practice and moved to new offices, Hampton House, a new development, both in its location and facilities, which allowed them to use a much more modern approach in keeping with the ever-changing requirements of the contemporary accounting services.

They are a forward looking company and have issued guidance for employers wishing to reward faithful employees.

When your employees achieve one of those milestones of service, perhaps 30 or even 45 years, you may want to acknowledge their loyalty. You can do this with a tax-free long service award worth up to £50 for each year of service, but the gift must not be cash or vouchers that can be converted into cash.

To qualify for a tax-free award, the employee must have served at least 20 years with the same employer, and must not have received another long service award in the previous 10 years. So you can make tax-free long service awards at say 20 years, 35 years and 45 years. As long as there is at least 10 years between each award they will all be tax-free. A gift made after 45 years of service could be worth up to £2,250.

HMRC is clear that a gift to an employee cannot be tax-free if it is explicitly given as a reward connected with employment, such as for ‘employee of the month’, or for long service (outside of the time limits above). A gift marking ten years of service is still taxable if the employee is picked out for special treatment based on his or her work or time served.

Since 1 October 2006 it has been illegal to discriminate or favour someone on the basis of their age, and awards based on length of service could be indirectly based on the employee’s age. When making any long service award or bonus (taxable or tax free) for a period of service of 5 years or more, make a note of your business reasons for giving the award, such as that it is necessary to retain and motivate staff.

HMRC’s internal guidance says that ‘small gifts’ made in recognition of a particular event, such as a marriage or birth of a child, are not taxable. Remember to record the value of the gift and reason for the presentation, such as a birthday, wedding, etc. If you are asked you can show that each gift was considered to be small and was not made solely in recognition of the employee’s service.

There is no firm guidance on what HMRC considers to be a ‘small’ value, although the measure must be made per employee, and not on the basis of the total cost to the employer. For example if you give a £15 turkey to each of your 20 employees at Christmas this should be a small gift and be tax-free, although the total cost to you is £300.