Quarterly News

A time for giving

So you want to give your employees a reward for their hard work this past, possibly difficult, year. Perhaps you were thinking of a party or a gift to say 'thank you' - but are there any tax implications for them and is it all tax deductible for the business?

The staff party

This is not classed as business entertainment as long as it is exclusively for employees and their partners. This means from the business perspective the costs are deductible for income tax (IT) or corporation tax (CT) and any VAT element is recoverable.

Be careful of situations where the business incurs costs for a mixed event for the benefit of staff and customers or suppliers, as the entertaining portion may be disallowed for IT and CT and part of the VAT may be non recoverable. In cases where clear records cannot distinguish between staff and others there is a risk of the whole amount being disallowed!

For the staff there is no taxable benefit of being provided with parties or events over the course of a tax year, provided that the overall cost to the employer does not exceed £150 (VAT inclusive) per attendee, in the tax year. Where there is an event which trips over this limit then a taxable benefit does arise.

A thank you gift

Gifts to staff are also normally a fully deductible cost for the business and VAT is recoverable. It is non-staff gifts which are usually restricted in form and amount to retain tax deductions.

HMRC generally allow an employer to give minor gifts to their employees without having to report this as a perk of the employee's job through the benefits system; for example, some flowers when an employee gets married. This may even apply where all employees receive a gift (for example chocolate), provided it is trivial and not something which can be turned into or used as money. In circumstances where an employer does need to report gifts, which are not trivial, a form P11D is used.

Using form P11D will mean that the employees will end up paying tax on the value of the gift. This may not be the best way of dealing with this issue as the tax charge may leave a nasty taste (unlike the chocolate!)

Alternatively the employer can pay the tax on the gift using a PAYE settlement agreement. Do get in touch if you would like to know more about this area.

In the last edition

Autumn 2011 headlines

• Low-paid get a boost
• The Residence Test
• When does 10% = 4%?
• What a Relief

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