Christmas has been and gone, but should advice firms endeavour to keep the spirit of generosity alive all year round? Paul Hargreaves, chief executive of wholesale food and drink distributor Cotswold Fayre thinks so.
Established in 1999, Cotswold Fayre was an early adopter of B-Corp certification in the UK in 2015. As a B-Corp ambassador, Hargreaves believes businesses in all sectors should put people and planet before profit. He has written a book – Forces For Good – explaining how doing this will create successful businesses and a better world.
According to Hargreaves, being generous towards employees and the local community – that is, without the expectation of receiving anything in return – is the key to building a successful business. But is this compatible with the way business – and the tax system – works in the UK?
Cultural differences
Spending time with people in India and, to a lesser extent, Africa, has given Hargreaves an interesting perspective on cultural differences in how people frame generosity, success and happiness.
The individual is at the centre of Western culture so that when we do someone a good turn or give someone a gift, we may become annoyed at not getting anything back. In contrast, some Eastern cultures see it as a privilege to be able to serve someone else with hospitality and giving – so there is no expectation of receiving anything in return.
According to Hargreaves, being generous towards employees and the local community is the key to building a successful business
Hargreaves notes that there are businesses who treat their staff well and are active in helping the local community, but these may not be entirely selfless actions. There may be expectations around retaining employees or building the firm’s brand, for example.
“If it’s a good place to work, it’s hard to leave and the business make more profit in time,” says Hargreaves. “So, some companies are probably doing it to get something back – and it’s better to be like that than not do anything. But far better to do it and not need to get anything back.”
Hargreaves says that in the west, we are subconsciously taught that it is self-sacrificial to do things for other people – that we will lose out or we will have less money for ourselves as a result. “But the opposite is true,” he says. “In India and Africa they have a different mindset – they give and don’t expect to get anything back,” says Hargreaves. “If we can get into that mindset, we will have a different business and a different world.”
Tax implications
Commentators in the financial services world agree with Hargreaves that employers should show their employees that they are valued.
“I agree 100% that you should do all you can to support and really look after your best talent – I absolutely agree with giving people good benefit packages,” says FTRC founder Ian McKenna. “Our own team gets private medical insurance and have access to our Harley Street doctor – either in person if they’re here, or remotely if they need it.”
However, McKenna points out that employers need to be careful that their generosity – if expressed as something like a birthday or Christmas gift – does not come with a sting in its tail.
“If you’re going to be exceptionally generous and give people great things, you do need to make sure that you’re not also giving them a tax bill,” he says.
Some things given to employees by employers as a token of appreciation will be deemed by HMRC as a taxable benefit in kind. It would then need to be reported to HMRC on an employee’s P11D form and tax would be charged at the employee’s marginal rate.
This is something tax firm Forbes Dobson was keen to highlight in the run-up to Christmas, when companies were been planning Christmas parties and possibly looking to buy gifts for valuable employees.
There are some people out there who, if given the proverbial inch, will take a mile
Under employment tax legislation, staff entertainment is only exempt from tax if it costs the employer up to £150 per person a year, including transport. For the exemption to apply to an event, all employees should be invited.
However, Andrew Marr, managing partner at Forbes Dawson, points out that in practice, employers tend to settle any tax payable on things like Christmas parties. “They deal with this through a PAYE settlement agreement – whereby the business covers the burden of the tax,” he says.
When it comes to buying gifts for staff, employers also need to be careful of the tax rules.
“There is an exemption for ‘trivial benefits’, where the cost does not exceed £50, provided the gift is not in cash or cash vouchers, performance-related, or part of a contractual obligation, including salary sacrifice arrangements,” says Marr.
Beyond materialism
Hargreaves acknowledges that some forms of generosity will be limited because of the tax implications. But he points out that there are plenty of other things employers can do to show they appreciate their staff that do not have tax implications.
Company culture that promotes values like giving and helping others should also ensure employees value their employer’s spirit of generosity and not abuse it
“They can do things like offer sabbaticals and birthdays off,” he says. “And flexibility – giving them the ability to collect their kids from school at 3pm. We tell them to just go and trust that that they will make the time up if needed.”
But does this open employers up to the risk of their generosity being abused? There are some people out there who, if given the proverbial inch, will take a mile.
“If you’ve got the right people in there, it doesn’t go wrong,” says Hargreaves. “We try to recruit on character. We recently took on someone who didn’t pass our Excel test because of their fantastic character – we thought we can teach them Excel.”
If someone did take advantage of the firm’s generosity, Hargreaves says he would talk to them to find out the reason for it and would not let it spoil the firm’s approach. “It doesn’t happen often – and it is not a reason not to do it,” he says.
Company culture that promotes values like giving and helping others should also ensure employees value their employer’s spirit of generosity and not abuse it. At Cotswold Fayre, volunteering in the local community is compulsory and the firm also has links to a charitable project in Kenya, for which it has raised £250,000.
“People do generally want to make a difference for the better. When people are asked why they work for the companies they work for, money is never top of the list,” says Hargreaves. “There are always things above it, like personal happiness and fulfilment.”
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