The rules surrounding tax and Christmas gifts

Tax and Christmas

“It’s the most wonderful time of the year” or so the song goes, when people are busy thinking about what gifts to get each other and possibly what they’ll receive in return. But what are the rules surrounding gifts to employees or clients? Can you claim back the VAT and tax?

 

In this blog we explore how gifts can be given and how to avoid excessive tax for your company or the person who receives the gift.

 

Giving and receiving

There are two sides to tax when it comes to Christmas gifts; one is for the giver and the other is for the receiver. The giver is your company, so is your company able to claim a tax relief for the cost, or does your company have to pay any taxes because of its generosity?

 

Giving to yourself or other employees – direct tax deductions

Remember that even if you’re a one man band, as a director of your Limited Company you’re also an employee, and therefore can still gift yourself at this time of year. Also if your company employs other people, then provided they receive the gift and not you, then the same rules apply.

 

Limit to your generosity

It’s worth remembering that if you go a little too crazy with your company gifts you could end up with a big lump of coal in your stocking, in the form of a National Insurance and tax bill. The basic limit is £50, so if you buy a gift that costs more than £50 (including any delivery charges) it will count as a taxable perk for the employee that receives it. They will have to pay Income Tax and as the employer, you’ll have to pay class 1A NI at 13.8% of the full cost, plus the tax due if you pay that on their behalf. So for example if you were to give a £60 gift it will cost you a total of £85 because of the tax and NI due.

 

If you limit each employee’s gift to £50 per person, it will then cover them for the trivial benefits exemption for employees (which means you don’t have to worry about their or your tax or Class 1A NI).

 

Remember though that cash gifts are not covered by the exemption.

 

VAT

You are able to reclaim the VAT incurred on purchasing the gift if you are not using the Flat Rate Scheme. You may, however, have to account for VAT in the return period in which you purchased the gifts, as they are treated as a supply, if the gifts received by the recipient are more than £50 in a year. If a gift is exempt or zero rated (i.e. a book) you will not have to account for the VAT, unless you are on the Flat Rate Scheme.

 

Gifts for your clients – direct tax deductions

A tax deduction above is not eligible for business gifts for your clients, but there is a similar exception. As long as the client’s gift costs less than £50 and it is not part of a series of gifts to the same person in the same accounting period (which will then exceed the £50 limit), it is tax deductible. This other exemption, however, does not apply to tobacco, food or drink.

 

The rules surrounding VAT on gifts for clients is the same as that for gifts for employees. Therefore you must account for VAT if the gift, or gifts (if there’s a series) have a value that exceeds £50.

 

HMRC – the Grinch that stole Christmas!

To HMRC, Christmas gifts do not hold any special significance, therefore the same tax and VAT rules apply. So whilst it would be nice to think that a waiver on tax and VAT for Christmas gifts would be HMRC’s gift to us, we wouldn’t hold your breath!

 

Final thoughts

If you’re planning gifts for employees or clients, remember to follow the above rules to ensure you don’t receive unwanted attention from HMRC this coming New Year.

 

Ensure you speak to your Personal Accountant before you purchase any gifts, as they will be able to advise you on how much tax and VAT you’ll be paying.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Office of Tax Simplification interim report on employee benefits and expenses: Quick Wins

Office of Tax Simplification interim report on employee benefits and expenses: Quick Wins

The Office of Tax Simplification (OFT) interim report on employee benefits and expenses, published in August, is a review of findings following extensive consultation with both employers and HMRC frontline staff on how the taxation of these areas could be made easier. It also includes a number of ideas and suggestions for change. As you would expect, some are ‘big picture’ which will take time and effort to discuss and implement. However, there is also a list of 43 ‘quick wins’ which are items   that could have a big, helpful impact quite quickly and with relatively little effort. Overall, as well as making things easier for those who incur non-taxable expenses, these changes could potentially simplify things for around 4 million employees and 300,000 employers who have taxable benefits and expenses.

The Quick Wins

Below is a selection of some of the 43 ‘quick wins’ which could be particularly helpful to contractors. Some of these ideas would require legislation to change and this is unlikely before the next election in 2015. Others simply need a change in how HMRC administers things or by secondary legislation, so could be implemented sooner.

Area

 

Detail

Needs legislation?

BenefitsHMRC to encourage voluntary payrolling of benefits, in place of reporting benefits on forms P11D.

Yes

Benefits – accommodationHMRC to review published list of employments where it is “customary” to get accommodation.

No

Benefits – broadbandHMRC to allow home broadband costs to be subject to PAYE Settlement Agreements.

Yes

Benefits – car fuelCar fuel benefit should be based on what you put in your tank, not how you pay ie: the differences regarding paying with a fuel card should not apply.

Yes

Benefits – car fuelAllow reimbursement of car fuel where employee contributes by 6 July.

Yes

Benefits – cycle schemesCarry out a proper evaluation of the cycle schemes success and look for ways of streamlining its administration.

Yes

Benefits – trivial benefitsHMRC should publish a list of benefits they consider to be trivial, presumably with limits on the amounts.

No

Expenses – mileage ratesAlign tax and NICs treatment of mileage rates over 45p.

Yes

Expenses – mileage ratesHMRC should not require retention of fuel VAT receipts for expense claims where only a mileage rate has been claimed.

No

Expenses – subsistence ratesHMRC should give better guidance on what qualifies for subsistence expenses.

No

Expenses – subsistence ratesHMRC should reinstate the practice of having a ‘friends and family’ scale rate.Currently employers cannot agree a scale rate with HMRC for expenses incurred by an employee if they stay with a friend or relative when travelling on business. Many employers find this unhelpful and argue that encouraging employees to stay with friends and family is much more cost effective than paying for hotel accommodation.

No

Expenses – travel and subsistenceHMRC should commit to revising and updating the booklet 490 to fit better with modern working patterns.

No

Expenses – travel expensesHMRC to publish guidance on temporary workplace rules for projects carried out in phases.This is where an employee attends a temporary workplace for one phase of a project, then works elsewhere on a different project, then returns to the first project for a later phase. Under current rules they may fall foul of the 40 per cent rule by attending a workplace for a period of continuous work – for 40 per cent or more of their working time – for more than 24 months. Sometimes HMRC has treated these as two separate temporary workplaces. It was suggested that the rules are changed to give a clear statutory framework for these decisions.

No

Expenses – travel expensesHMRC should stop treating London as one workplace regardless of travel time.HMRC has sometimes deemed all of London as one workplace even though two separate workplaces could be one or two hours travelling time apart.

No

HMRC administrationImprove guidance and design of Form P11D, for example state that you need a different form if the employee earns less than £8,500.

No

HMRC administrationAdd a box to the P11D to tick if the benefit is just for one year.

No

HMRC administrationAllow voluntary notification of in-year changes to benefits.

No

HMRC administrationHMRC to improve guidance on allowable expenses.

No

HMRC administrationHMRC to allow all types of expenses claims to be made on one form, or online.

No

HMRC administrationImprove web-site guidance and cross referencing, for example keep the What’s New pages up to date.

No

HMRC administrationHMRC to improve layout and design of Form P87 for claiming expenses.

No

 

These are initial ideas and so far no priorities or further detail has been given. Over the coming months OFT will be discussing the report in detail with Treasury Ministers. It plans to publish its recommendations in stages with some coming out before the end of 2013 and some in January/February 2014.

For further information the full OFT Review of employee benefits and expenses: interim report can be found on their website.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.