Long Service Awards – Tax Implications

Long service awards

As an employer, providing long service awards can be a great way to show your loyal employees your appreciation, and how much value they bring to the business, after being employed with you for a long period of time.

But did you know that these benefits can come with tax implications?

If not – don’t worry. We have all the information you need to know.

What are ‘long service awards’?

Some businesses with staff who’ve been employed for a lengthy amount of time choose to give them gifts on employment milestones as a token of appreciation.

These gestures of recognition are usually gifted to employees on milestones such as 5, 10 15, 20 years etc. This long service gift can be a great way to encourage staff members to stay in their position for a longer amount of time in order to receive these awards. This is a great strategy, especially during this day and age where many people switch jobs every few years.

What is usually given as a Long Service Award?

Some gifts that are typically given are:

• Vouchers/ gift cards.
• Additional holiday leave
• e.g., a weekend break.
• Experiences, e.g., spa days, sports events, skydiving.

You can choose what gift to give your employee as a long service award, but you must remember that some gifts have certain tax implications!

Tax Implications – What’s exempt?

So, you’ve decided to give a gift to an employee for their long service – but what is exempt from tax implications?

According to the Government website, you do NOT have to report or pay on a non-cash award to an employee if all of the following apply:

• they’ve worked for you for at least 20 years
• the award is worth less than £50 per year of service
• you haven’t given them a long-service award in the last 10 years

For example, you can give a non-cash award with a value of up to £1,000 for 20 years’ service.

Tax Implications – What do I need to report and pay?

Now you know what’s exempt from tax implications on long service awards, lets find out what you must report to HMRC and deduct and pay tax and National Insurance on. According to Gov.uk:

Cash Rewards

Any cash you award to an employee counts as part of their earnings.

You must:

• add this amount to your employee’s other earnings
• deduct and pay Class 1 National Insurance and PAYE tax through payroll

Non-Cash Rewards

For employees with at least 20 years’ service and no previous award in the last 10 years, you must:

• Report the amount of a P11D form
• pay Class 1A National Insurance on the value of the award over £50 per year of service

For all other employees you must:

• Report the amount of a P11D form
• pay Class 1A National Insurance on the full value of the award

Readily convertible assets

If you award a readily convertible asset to an employee with at least 20 years’ service and no previous award in the last 10 years:

• add any value above £50 per year of service to your employee’s earnings
• deduct and pay Class 1 National Insurance and PAYE tax through payroll

For all other employees:

• add the total value to your employee’s earnings

Extra Guidance

Employment Income Manual – https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim01500

To Conclude

Giving gifts to employees for their long service is a great way to reward staff and encourage them to continue their employment, but you must be aware of the tax implications on certain gifts that are given.

If you require any more help and advice on this matter, including P11D forms, contact us on 01179 902218 or email us on hello@spectrum-accountancy.co.uk

Did you miss our previous blog about MTD for Small Businesses – Reminder?

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Categorised in: Accountancy Services, P11d

This post was written by Daisy Vowles