Getting a tax-deduction for your gifts
How are gifts taxed?
We understand that the tax rules regarding benefits in kind are due to be reviewed, because the Taxman is currently consulting on how best to do it. However, in the meantime, you're stuck with the current rules, therefore if your company makes a gift to a director they will be taxed on whatever it cost to provide it. And that's not just the cost of the item itself; any associated cost such as delivery charges will also be taxed. So, is there any way around these rules?
You'll be pleased to know that the Taxman has a consession. This consession allows the Taxman to ignore gifts made to employees when he considers them "trivial". Typically, this concession applies to seasonal gifts to staff such as a hamper or bottles of wine at Christmas. And there's even better news - it can also extend to gifts for staff in other situations, for example, a birthday or wedding gift.
What is considered Trivial?
Rather unhelpfully the Taxman doesn't quantify what he considers to be trivial. So we have to use our common sense concession when considering what trivial would mean in practice.
Gift tax tip 1:- I think we're safe in saying that a birthday gift costing £50 wouldn’t cause a problem. Perhaps a gift of greater value, say £100, would be considered trivial for a member of staff or a director if they were getting married or retiring.
Non-trivial gifts for long service
But, the gift bonanza doesn't have to stop there. Suppose you have an employee or director who has 20 years of service. You could give them a gift to the value of £100, but this might seem a little mean after so many years of loyal hard work. So, is there another way in which they could be rewarded without incurring tax?
Gift tax tip 2:- You'll be pleased to know there is. EIM01500 provides the details of of a tax-free gift of much greater value. The main condition is that the person receiving the gift must have worked for the Company for 20 years or more. In addition you must not reward them in cash or vouchers that can be converted into cash, and cannot exceed £50 for each year of service. Therefore you provide a gift to the value of £1,150 for someone with 23 years service.
Gift tax tip 3:-. For your really long-serving employees there's an additional bonus. More than one long-service gift can be made to the same person. However you must make sure there are at least ten years between each gift. So, this could apply to an employee with 30-years service. A tax-free gift of £1,500 could be for an employee with such a long service record.
Gift tax tip 4:- Make sure you keep good records of the reason for the gift. You don't need to inform the Taxman that you are making the gift, however, should you have a payroll inspection it's likely you'll be asked why the employee receive a tax-free payment. Good notes kept in the payroll files will help you through such an inspection.