Finance

A time to think about giving

by Ian Williams FCA TEP, Campbell Dallas Chartered Accountants

It is Christmas Eve already - the office party is over, the turkey is in the oven (well nearly) and everyone is looking forward to a relaxing end to a busy year. Just enough time to get a last minute gift for the staff?

Gifts to employees

In addition to the staff party, H M Revenue and Customs (HMRC) also allows small gifts in kind to staff. The gift has to be “trivial” and cannot be money, something capable of being exchanged for money, or a voucher. Gifts such as a turkey, a bottle of wine or a box of chocolates would normally be accepted by HMRC as being trivial. The gift cannot be in reward for services, as an employee, so a reward for the year’s hard work will still attract tax, whereas a seasonal goodwill gift will not. The total cost may be substantial, where a large number of staff is involved and, provided the individual value per gift remains trivial, no liability should arise. Before giving, I recommend you contact HMRC to obtain their agreement that the gifts concerned will be accepted as “trivial”, as no clear definition is given.

Christmas bonuses

Cash bonus payments are subject to tax and NIC in the pay period in which they are made. Where a gift or a payment is made that gives rise to a tax and NIC liability, a PAYE Settlement Agreement (PSA) can be used to pay any liability on behalf of the employee. The use of a PSA involves grossing-up the payment for tax and NIC so that the value received by the employee represents the net value after deductions. This does make giving a free gift more expensive but it will help to maintain staff goodwill. Where the item is subject to tax or NIC at the time of payment the agreement must be in place before the payment is made. In other cases they can often be agreed after the event.

Santa Claus exemption

There is an overall exemption provided by HMRC to Santa Claus. Santa incorporated his business this year to save tax. Not that he pays a lot. He has never paid VAT and gifts made by Santa are tax free (special concession by HMRC). Despite professional advice he continues to pay all the fairies “cash in hand”. Even worse, no regard is made to the Working Time Directive, money laundering or minimum wage legislation. He blatantly ignores the health and safety issues when working on those roofs and has scant regard for speed limits. Some businesses get all the luck. Happy Christmas from all at Campbell Dallas.