Dressing staff tax-efficiently!

Since 6 April 2016, gifts to employees which are “trivial” (cost the employer of no more than £50) are free of tax and national insurance (NI) and the employer can make an unlimited number of such gifts each year, to each employee! Gifts to directors, however, are capped at six a year, each up to a value of £50.

So, could you use the ‘trivial gifts exemption’ to buy work clothing, say, for employees? If a work outfit consists of components, say shirt, plus trousers/skirt which add up to more than £50, you could provide each item as a separate gift, tax and NI free, as long as each item costs £50 or less.

What happens if a single item of clothing costs more than £50? The above approach won’t work so, instead of giving the item to your employee, lend it to them. The benefit-in-kind (BIK) for lending them something is calculated as 20% of the item’s value when first provided to the employee. As long as these amounts total less than £50 the trivial exemption will apply. So, if an item of clothing which you lend to an employee costs you, the employer, £200, the BIK charge would be 20% x £200 = £40. As this is less than £50, the trivial exemption applies. So, you could buy something for up to £250 and ‘lend’ it to an employee with the 20% BIK charge of £50 covered by the trivial gifts exemption.

So, we’ve found a way for you, as an employer, to ‘lend’ an item of clothing to an employee – and how I have described it above is the only way of doing it for ‘normal’ clothing like a suit or dress. However, if you’re thinking about uniforms or protective clothing, it’s a bit easier. There’s no need to do the ‘loan’ thing because there’s no tax or NI liability for the employee if the clothing counts as protective or is a uniform; the question now then is what exactly is protective clothing and what exactly counts as a uniform?

Clothing is protective if it’s “worn as a matter of physical necessity because of the nature of the job”. The definition of ‘uniform’ is a bit trickier. Requiring employees to follow a corporate dress code (say a black suit and white shirt) isn’t enough – it must obviously be a uniform. The inclusion of your company logo, if it’s sufficiently obvious and recognisable, can turn an otherwise ordinary item of clothing into a uniform.

So there you go – get ordering your staff clothing!

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David Elliott

Chartered Accountant, BSC, FCA

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