Business gifts are very common at this time of year. It’s a time that we all try to say thank you to those that have supported us during the year.
In this blog, I will like to explain the tax consequences of business gifts.
GIFTS TO EMPLOYEES
When employers give gifts to their employees, it is usually a taxable benefit for tax purpose.
The employer would also have to pay National insurance Class 1A at 13.8% on the cost of the gift to the business.
However, if it meets the following conditions it would be a tax-free benefit:
CONDITIONS FOR GIFTS TO BE NON-TAXABLE.
- The benefit offered to the employee must not be cash or cash voucher.
- The cost of the benefit must not exceed £50 for each employee. If it’s not possible to ascertain the cost of the benefit to each employee, an average can be calculated.
- The benefit offered to the employee must not be provided as pursuant to the relevant salary sacrifice arrangement. The employer must not have obligations to pay the employee or include this benefit in the employer benefit packages.
- The benefit offered to the employee must not be in recognition of particular services or employee rewards for services performed by the employee.
These kinds of benefits are referred to as trivial benefit and can be given to employees not only at Christmas but at special occasions in their life; for example Engagements and weddings, new births of baby, wedding anniversary, Loss of family member, graduation, Staff birthdays, Faith-based celebrations, etc.
Examples of trivial benefit to offer employees: Tickets to the cinema, Christmas gifts or hampers, Football tickets, Champagne, Bunch of flowers.
WHAT HAPPENS WHEN CONDITIONS ARE NOT MET?
The cost of the gift will be added to their employment income and tax will be deducted at their tax band rate.
The business will also have to declare these gifts to HMRC using the P11D form which needs to be submitted by July 8th following the tax year.
GIFT TO CUSTOMERS AND CLIENTS.
Businesses are also allowed to give a gift to their clients.
However, these expenses would only be tax deductible if it meets certain conditions.
CONDITIONS FOR BUSINESS GIFTS
- Each individual item must not cost more than £50
- It must not be food, drink or tobacco item.
- The gift must have a clear advert for the business.
TAX CONSEQUENCE OF NOT MEETING THE CONDITIONS ARE:
The cost of the gift to the business will be added back to the account as a disallowed expense and therefore the business will be unable to claim a relief for the expense.
Some business also organizes annual parties for their team members.
The cost of the parties is a taxable benefit on the staff members.
If the following conditions are met then it would be a non-taxable expense for the business.
CONDITIONS FOR ANNUAL PARTIES TO BE NON TAXABLE FOR TEAM MEMBERS
- It must be an annual event.
- All employees of the company are allowed to attend
- The cost per head for these party would be less than £150
Note: if employees invite their partners to these parties, it would be taxable on the employee as a taxable benefit.