VAT-Free Staff Rewards

Making gifts to your staff to reward them for good work can mean having to account for VAT on these. However, there is an alternative way you can reward your employees that’s entirely VAT-free.

For Under £50, think ‘goods’

Back to basics. When you provide your staff with perks the rules surrounding the reclaiming of VAT can seem complicated so employers often take the safe option and don’t bother. But you could be missing out on quite a lot of VAT if you do this.

Goods. If you provide your staff with small gifts as incentives and rewards for hard work, these benefits-in-kind are governed by the business gifts rules. These say that you don’t have to account for VAT where the value of the gifts to the same person doesn’t exceed £50 in the course of a year.

But what if you want to provide your staff with perks that are worth more than £50? If you want to provide the perk in goods, then you have to pay back the VAT that you claimed on the cost of buying the goods as output VAT.

Over £50, think ‘services’

It’s a reward. However, you can get round this by providing the perk as a service rather than goods as there are no monetary limits for services. Services would include providing tickets to the opera, theatre or even the cinema. The overriding condition being that they are an incentive or reward for good performance and which is open to all staff (including directors) who meet the criteria of your particular reward scheme.

Specific Member of Staff

Favouritism? What happens if you want to reward only one specific member of staff? For example, let’s say you’ve thought about giving them £60 to use at a local restaurant as a reward. How can you structure it in a VAT-efficient way?

Problem. If you just give them the £60 cash (PAYE considerations apart) you will not have any VAT to reclaim. Solution. What you should say to your employee is that as a reward you will provide “up to” £60, but only if they provide you with the bill. (This could even be processed through a monthly expenses system.) If the employee spends less, say, £40 on the meal, you reimburse him the £40 and claim the VAT back on the invoice from the restaurant.

Authority. The VAT principle is the same as taking the whole department out. It’s a business expense to reward and encourage staff; it’s just that the manager doesn’t go along to actually pay the bill in our scenario.

Tip. If the member of staff takes along a non-employee, e.g. a spouse, make a nominal charge for the meal to the non-employee in order to get the VAT back on the whole meal. Warning. Don’t provide vouchers to staff as these are treated as money by the VATman and so you will not have any VAT to reclaim

We hope you found this useful.

The S4B Team