With the season of goodwill on us, it is worth looking at what gifts can be made to employees, and the tax implications of them. Sadly the employer is very restricted in what they can offer, but most gifts will be tax allowable for the employer:
- Small gifts upto say £50pa can be given to employees in recognition of an event such as a birthday or exam pass. These are treated as “trivial”
- Seasonal gifts can similarly be given and these may include a turkey or bottle of wine, but not as much as a hamper or case of wine
- Any promotional product with a “conspicuous advert” given by the employer is allowed, once again providing it is not more than £50pa, and not food, drink or tobacco. The treatment is similar for gifts to customers
- If you are VAT registered you can claim back the VAT, but if it is more than £50 you must declare the VAT as if you had sold it, so there is no gain
- For a larger gift the employee will be treated as receiving a benefit in kind and will be taxed on it, and the employer will have to pay Class 1A NI in the usual way
- An alternative to a benefit on the employee is for the employer to make a PAYE Settlement agreement with HMRC, this transfers the responsibility to the employer who pays the PAYE due. This is often used where all employees are given a higher value Christmas hamper for example
Slightly more valuable tax free gifts may be given in the following circumstances
- Suggestion scheme awards – where a staff member makes a suggestion under a proper scheme with a set percentage award being given for the financial benefit to the business, upto £5000 may be given
- Long service awards – these only apply where an employee has been with the company for over 20 years (which is now quite unusual) an article may be given upto the value of £50 per year of service
The sums involved are relatively small but are worth using where possible. You may also be interested to read an earlier article on the Christmas party. This article provides information on some of the options available but may not wholly apply to your situation so you should seek professional advice before taking any steps based on the contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”