How is a birthday gift to your employee treated for tax purposes?
You would like to give your employees a gift with their birthday. It would then be inconvenient if they had to pay tax on the value of this gift. Is it possible to give the birthday gift tax-free?
It can be argued that a birthday gift is given because of the personal relationship. If you give your employee an allowance, dispensation or provision that falls outside the employee-employer relationship, then there is no wage. After all, there is then no connection with the employment relationship.
There are also possibilities under the work-related costs scheme (WCS) to give a gift tax-free. Sometimes this can even be done tax-free without having to use the WCS, through the small gifts scheme.
Read also: What is the work-related costs scheme?
No connection with employment relationship
If you give something to an employee that is not related to the employment relationship but to the personal relationship, this can be done tax-free. In that case, there is no question of salary. For example, a fruit basket for a sick employee or a funeral wreath in the event of death.
In connection with the employment relationship
If something is given in connection with the employment relationship, it does constitute wages and is in principle taxed.
Small gifts scheme
Whether you give something in connection with a personal relationship or in connection with the employment relationship can be subject to discussions with the tax authorities. To avoid discussions about small amounts, the so-called small gifts scheme was introduced. Under the small gifts scheme, you can give tax-free gifts to employees. However, you must meet these three conditions:
- You give a personal gift in situations where others would also give such a gift (e.g. birth, birthday, marriage, illness, etc.), but not work anniversaries.
- The invoice value is a maximum of €25 (including VAT).
- This may not be a gift in cash or a voucher.
When is something a personal gift?
A personal gift is a gift if the employee’s person is the main focus when giving the gift. Whether the employee is entitled to the attention is not important. A bouquet of flowers on the employee’s birthday is an example of a personal gift.
What if the gift costs more than €25?
If the invoice value is more than €25, it may still be not considered as wage if there is no connection to the employment. However, bear in mind that you might get into an argument with the tax authorities about this.
Why not a voucher?
A voucher is an ‘instrument’ that entitles you to goods and/or services. There must therefore be something in return. A state lottery ticket, on the other hand, does not necessarily entitle you to money. This is because it is not certain that a sum of money will be paid out. You can therefore give it tax-free.
Work-related costs scheme
If the gift is related to the employment relationship and does not fall under the small gifts scheme, you can also place it in the free space of the work-related costs scheme. This way, you avoid that the gift is being considered as wage.
If your free space is full, you can still opt to pay the final levy of 80%. The gift will then however become more expensive for you: a gift of for example €150 raised with 80% will then cost €270.
So there are some options to provide a birthday gift to your employees tax-free.
