2 Jul 2025
Want to treat your team without upsetting the taxman?
Looking after your team is one of the best things you can do as a business owner. To paraphrase a line from Jerry Maguire, it is personal relationships that are key to business.
However, if you have ever tried to give a gift or say thanks with a bonus, you may well have found HM Revenue & Customs (HMRC) asking you to “show me the money!”
The good news is that there are plenty of tax-free benefits that you can offer. This is good for morale and has the added bonus of keeping more of your money away from the taxman.
Here is a quick rundown of some of our favourite ways to reward your staff (and yourself, if you are a director) without triggering any nasty tax surprises.
Small perks with big impact
Trivial benefits
These are small, one-off gifts that cost £50 or less (including VAT). This could be a bottle of wine, a birthday cake, or even drinks at the pub after a long week. So long as they are not in the terms of the person’s contract, cash or cash-redeemable vouchers, then they are fine.
Directors of ‘close companies’ (where there are five or fewer shareholders) are limited to only being able to receive £300 a year, a limitation that does not apply to regular employees.
So, as long as they are not a reward for doing a job and are not part of a salary package, they are tax-free for the employee and a deductible expense for the business.
I think we can all raise a glass to that!
Staff entertaining
An annual summer BBQ or festive party? Go for it.
You can spend up to £150 per head each tax year (including VAT) on staff events, tax-free, as long as it’s open to all employees.
This does not mean that everything has to be company-wide. Events can be organised at a department level or for each of your offices.
Practical support that makes a difference
Company pension contributions
This one’s a classic. Help your team save for their future and reduce your business’s National Insurance bill at the same time. You will also be able to deduct the cost of the contributions.
Working from home?
If you have staff working remotely, they can receive up to £6 a week tax-free to cover their extra household costs – either by being reimbursed by you or claimed by the employee via Form P87 through HMRC.
It is easy to set up and fully deductible, but be aware that this is only available to those who are mandated to work from home in their contract, not those who have been allowed to work voluntarily at home.
Pension advice
Offer up to £500 of tax-free pension advice per employee, per year. It is a great way to support financial well-being, and again, it’s deductible.
To be eligible for Income Tax and NIC relief, this must be made available to all employees or a qualifying group, such as people nearing retirement.
Approved mileage rates
If employees use their own car for work (excluding commuting), you can reimburse them at HMRC’s approved rates without triggering a tax charge.
When staff use their own car for business travel, you can pay them tax-free 45p per mile for the first 10,000 miles in the tax year and 25p per mile after that.
If someone is driving a company car, the mileage rates are a bit different. HMRC sets Advisory Fuel Rates each quarter based on the car’s fuel type and engine size. The current rates can be found here.
Mobile phones
Give employees a company mobile, and it is tax-free for them, fully deductible for you, and super simple to manage.
Each employee can only have one company phone and the contract needs to be set up between the employer and the provider.
Health screening and medical check-ups
A healthy team is a happy team, and you can offer one health screening and one medical check-up per employee per year, tax-free.
Wellbeing and lifestyle boosts
Cycle to Work schemes
Encourage greener commutes with bikes and qualifying accessories via the Cycle to Work scheme.
This can include helmets, lights, safety clothing, locks and tools but tech gadgets or non-safety waterproofs are not part of the deal.
Staff sacrifice part of their salary to pay for the bike, but they do so tax-free, and you can claim the costs too.
To be eligible, staff must be over sixteen and earning minimum wage past sacrifice to qualify. The bike must also be mainly used for commuting (50%+).
Why not host a Cycle to Work day and throw in some free breakfast? That can be tax-free as well!
Staff suggestion schemes
Got a team full of bright ideas? Reward suggestions that save your business money with tax-free payments (up to £5,000 in some cases).
The suggestion scheme must be open to all your employees or to a specific group of employees. The suggestion itself is limited by specific criteria. To qualify, it must:
- Be about your business
- Not have been suggested as part of normal work
- Not be suggested in a proposal meeting
There are a few specific rules to consider when it comes to setting the amount of reward received.
You can offer up to £25 as an encouragement award for any good suggestion or to reward your employees for special effort. Even if the suggestion is not implemented.
If the idea is taken forward and results in measurable business benefits, a financial benefit award of up to £5,000 can be given tax-free! The amount that is exempt is the greater of 50% of the money you expect the suggestion to make or save your business the year after you put it into action and 10% of the money you expect it to make or save your business in the first 5 years after you put it into action.
Long service awards
If someone’s been with you for 20 years or more, say thank you with a non-cash award worth up to £50 for each year of service.
Be careful of your generosity, as you cannot have given a similar reward in the last ten years.
How about a holiday or unique experience? That is a lovely way to show appreciation without a tax hit.
Salary sacrifice
Salary sacrifice lets your team exchange part of their pay for benefits like pensions, bikes, or electric cars.
It reduces your employer's NIC costs and gives staff more for their money by reducing Income Tax and their own NICs.
Unfortunately for sole traders or partners, you cannot make use of this.
Eye care
Looking after your team’s eyes? Good news, eye tests can be tax free if they are required by health and safety legislation for employees who regularly use a screen such as a computer monitor.
And it does not stop there! If the test shows they need glasses or contact lenses specifically for screen work, you can cover the cost of those too. Just make sure it is based on what the eye test recommends, and it is for work-related use, not every day wear.
Welfare counselling
Support your team’s mental health with access to counselling services. Counselling is normally considered a taxable benefit, but there is a key exception when it comes to welfare counselling provided by an employer.
If it is offered as part of an employee support or assistance programme, it can meet HMRC’s criteria and be exempt from tax!
This exemption is narrowly defined, so it is important to stick to the rules. The counselling must be focused on welfare related issues and services like Cognitive Behavioural Therapy or Interpersonal Therapy may be included, provided they are a part of the welfare support on offer.
Eligible topics:
- Stress
- Problems at work
- Debt problems
- Alcohol and other drug dependency
- Career concerns
- Bereavement
- Equal opportunities
- Ill-health
- Sexual abuse
- Harassment and bullying
- Conduct and discipline
- Personal relationship difficulties
This range of eligible topics is generous, but there are topics specifically excluded. These are:
- Advice on finance, other than advice on debt problems
- Advice on tax
- Advice on leisure or recreation
- Legal advice (although common sense should apply to restriction where the legal issue arises secondary to an exempt issue).
As you can see, there are many more eligible topics than excluded!
Some limited services can also be extended to your employees’ dependents, but there are extra conditions.
There must not be a separate helpline for a spouse, partner or child, and face-to-face counselling must be for the employee and not their family members alone.
Family or couple counselling is allowed, but a dependent cannot access the service independently and they will not be given access to any legal advice.
Handled correctly, welfare counselling can be a valuable and tax-free benefit, supporting staff wellbeing without creating an additional tax cost.
Want the full list in a handy download?
We’ve put all this into a downloadable flyer that’s perfect for sharing with your team or sticking on the office noticeboard.
If you are ever unsure what qualifies as a tax-free benefit, or you want to set these up properly, speak to our team today. We are always happy to help and make your tax position work harder for you.
Charlotte Parker