STAFF GIFTS - 03.07.2018

Is it Christmas already?

Summer spend?

You usually give staff a gift at Christmas as a reward for all their hard work. It’s often a last-minute thing but you’ve heard about some firms splitting the gifts, giving part in the summer and the rest in the winter. Why are they doing this?

An explanation

Gifts to employees (other than cash or vouchers that can be exchanged for cash) are taxable, plus employers must pay Class 1A NI (at 13.8% of the cost of the gift). However, no tax or NI applies when the gift is covered by an exemption. For example. For many years HMRC applied a concessionary exemption for modest seasonal gifts, e.g. a turkey, bottles of wine, etc. No monetary limit applied, but the cost per head had to be trivial. As a rule of thumb £50 was often quoted, but actually HMRC probably wouldn’t have batted an eyelid had the figure been slightly higher.

Change of tune. Then in April 2016 a statutory exemption was introduced for trivial benefits. This applies to all gifts, not just seasonal ones. It fixed the exemption at £50. For some employers, who in the past edged over the £50 mark, the exemption has turned out to be bad news. That’s because the trivial benefits exemption is a “de minimis” limit, so a gift costing more than £50 per head is fully liable to tax and Class 1A NI.

We’ll take care of that

So, where a gift is taxable, i.e. costing over £50, most employers choose to also pay the employee’s tax so that the goodwill - which must be a key feature of any gift - isn’t lost. This increases the cost to the employer considerably.

Example. Acom makes seasonal gifts to their 25 staff of £100 each. Here’s how the costs end up totalling £3,941 (£2,500 + £975 + £466).

Tip. Tax and NI is avoided entirely if you split the annual gift in two. In fact, under the terms of the exemption, you could split a large taxable gift into any number of gifts so that it falls within the trivial benefits exemption. In theory they could be given within days of each other and the exemption still applies if they are clearly separate gifts.

Watch out. For now, there are no anti-avoidance rules to prevent this. However, HMRC is keeping a watching brief on how the exemption is used. So now is the time to make the most of it in case the rules are tightened.