BENEFITS - 25.10.2007

Grateful suppliers

Other occupations

Comparison. At the end of term a schoolteacher is likely to struggle home laden down with a large box full of presents. You have even noticed local supermarkets selling mugs inscribed “To the best teacher in the world”. However, do these come with a tax liability as benefits-in-kind? What are the income tax and NI implications of these employee presents?

Rule of thumb. Generally, voluntary payments or gifts made by an employer to an employee are assessable to income tax, except where it can be shown that there was a personal element in the gift. In our example, the gifts to the teacher are certainly not provided by the education authority so fall outside the scope of P11D taxable benefits. Neither are they provided by someone else’s employer and consequently no third party reporting is required.

Warning. However, had the school been a private educational establishment and a week in Tuscany was offered by the parents in respect of extra tuition for the child, then perhaps a closer scrutiny of the gift and freebie arrangement would generally be called for.

You. Surely the rules are the same for you or your employees if you get, say, Christmas gifts from your customers/suppliers this year?

Your business

£250 tax-free. Since April 2003, gifts to employees and directors of up to £250 (per tax year) from individual third parties are exempt from tax. If the limit is exceeded, the total amount is taxable, not just the excess. Conditions? First, gifts provided by a parent or associated company are not covered by the exemption. Second, the gift must not be made in recognition of, or in anticipation of services (see The next step). Gifts from separate sources don’t have to be added together, so you could have received gifts of just under £250 from several different tax sources.

Pooling gifts. Some employers operate a policy that all gifts are pooled. When they are subsequently distributed it’s the employer who is making the gift. It’s therefore the cost to the employer of any gift, which is important. If you were given the gift in the first place there would be no cost, and therefore nothing to report to the Taxman.

Entertainment. Goodwill entertainment of employees by third parties is also exempt from tax. Again there are conditions although there is no £250 limit on the cost of the entertainment. The Taxman expects you to ask yourself the question: “Why was I entertained or why did I receive the gift?” But who does?

Conclusion

Small gifts can now be regarded as trivial and as such will not have to be declared to the Taxman. Gifts to employees and directors of up to £250 (per tax year) from individual third parties are exempt from tax. However, it’s up to the giver to tell you the cost of those gifts, which definitely won’t be the price you see in the shops.

The next step

For a list of what is exempt from the Taxman’s scrutiny, visit the Download Zone at http://tax.indicator.co.uk (TX 08.02.05).