Tax & NIC on Gifts to Employees

The season of gift giving (and receiving – if you’re lucky!) is upon us once more. If you intend to give a Christmas gift to your employees then it could be worth your while having a chat with us first about the tax and NIC implications of such gifts, as there have been some changes in the Inland Revenue’s approach to “trivial” gifts which could reduce liabilities.

Recap

The basic rule for the reporting and taxation of gifts made to employees has always been that they should be treated in one of two ways:

1. Reported on the employee’s P11D, whereby the tax is paid by the employee and any Class 1A due is paid by the employer, OR
   
   
2. Included in a “PAYE Settlement Agreement” (PSA), whereby the employer pays both the tax and NIC due.

Tis the Season

In recent months the Inland Revenue, in an apparent effort to shake off its Scrooge-like reputation, has issued guidance telling us that certain gifts of a “trivial” value can be given without resulting in a tax or NIC charge. It has specified that seasonal gifts such as a turkey, bottle of wine or box of chocolates fall into this category (just don’t ask me what you should buy your tee-total weight-watching vegetarian employees!). Note that this guidance applies all year-round, and not only at Christmas. Therefore, gifts to employees for special occasions (marriage / birth of a baby etc.) should also fall into this category.

No de minimis value has been stated, though we are told that while a box of chocolates or bottle of wine is trivial, a food hamper or case of wine is not necessarily so. It is left to both employers and the individual Inspectors to decide whether or not tax and NIC is payable, which is sure to give rise to some lively debate. Hopefully, though, common sense will prevail. It appears that the Revenue is keen to cut down administration costs for both themselves and employers where the tax and NIC at stake is not significant. Furthermore, it is emphasised that the value of the gift to each employee should be considered, rather than the total cost to the employer, which ensures that employers with large workforces are not discriminated against.

It is worth noting that the guidance specifically states that neither money and vouchers nor benefits which save the employees money (e.g. provision of home to work travel) should be considered as “trivial”. Furthermore, we are told that if the benefit is a reward for services then it is generally taxable.

Getting it Right

If you intend to make gifts to your employees then we would be happy to advise you on the tax implications. We will identify any gifts which are likely to be regarded as trivial and obtain agreement from the Revenue that no tax / NIC is due thereon. Please note that it is not enough to simply stop reporting these items or paying the tax / NIC as the Revenue regards the non-collection of the tax as a concession, and that it is strictly payable without their agreement otherwise. If your gifts are not “trivial”, we will advise you on the appropriate steps to be taken, for example applying for a PSA or P11D reporting.


Of course, we at Nunn Hayward would be happy to discuss your specific circumstances, and to assist you in all aspects of reporting and compliance. Please feel free to contact me on 01753 888211 steve@nunn-hayward.com.

P.S. Christmas Parties: While we’re on the subject of Christmas festivities, just a quick reminder that if the total cost of an employer’s functions and events for employees such as Christmas parties etc. exceed £150 per head in the year, it is likely that tax / NIC will be payable. We can advise you on how to mitigate your liabilities or failing that how to deal with the situation, i.e. through a PSA or P11D reporting.

STEVE COOK (Tax Partner)