Stephen Oates: The gift of giving may not be tax free
Stephen Oates, tax director at French Duncan, warns that business owners should take care that they don’t make employees liable for additional tax and National Insurance by giving gifts at Christmas.
HMRC has decided to make gifting as complex and thankless as possible to ensure that, regardless of the good intentions behind the gift, there could be financial penalties if the rules are not obeyed!
The last thing an employer wants to do is provide a reward for employees at Christmas only to find that it has made their staff liable to additional tax and National Insurance.
For example, business owners often wish to provide their workforce with gifts at this time of year in the form of non-cash items under the assumption that there will be no tax liable in doing so. Unfortunately, like everything in tax if proper consideration is not given to the tax consequence of the gifts this may give rise to income tax and national insurance contribution liabilities for the employee.
In many cases such gifts will be covered by the trivial benefits rules which is a gift valued at under £50, is not cash or a cash voucher, is unrelated to work or performance and isn’t in the terms of the employees’ contract. For those gifts not covered under trivial benefits rules then the full value of the gift is taxable under the usual benefits rules.
Providing your workforce with a cash voucher instead of a gift, counts as earnings and is included in payroll at the time that the employee receives the voucher and is liable for full tax and NI deductions through PAYE. A non-cash voucher is any item, such as vouchers, stamps, documents or tokens, which is capable of being exchanged for goods or services now or at some time in the future. Earnings arise when a non-cash voucher is received, not used, by an employee and is chargeable to tax and Class 1 NIC on the cost to the employer of providing the non-cash voucher, less any amount made good by the employee on or before 6 July after the end of the tax year in question.
All of this tells you that HMRC don’t believe that it is the thought that counts at Christmas but the income it can generate in taxes. Nevertheless, it is a good thing for employers to reward their workforce, but they just need to ensure they do it in a way that doesn’t incur tax and NI for themselves or their employees.
- Stephen Oates is a tax director at French Duncan. View his profile here.