Tax consequences of giving my staff a gift

Answer

Staff gifts fall into the category of entertaining and as a general rule, expenses incurred by a business in providing entertainment or employee gifts, in connection with a business are not tax deductible. However, tax law does provide a number of exceptions to this where the cost of a gift can be deductible against the business profits.

Gifts to employees can be tax deductible for the business but it is important to ensure that gifts are not excessive over the course of a tax year, as otherwise it may be treated as a benefit in kind and the employee may have to pay tax on it.

The general rule is that all gifts to staff are classed as taxable benefits, however, there is an exemption for certain “trivial” gifts where the cost of the gift is not more than £50 per employee. To qualify for the exemption, the gift must not be in return for a salary sacrifice or in respect of work carried out, and although store vouchers are acceptable, the gift must not be cash or a voucher that can be exchanged for cash.

Also, where the gift incorporates a conspicuous advertisement for the business, then that may be tax deductible. For example, a branded golf umbrella, mousemat or diary would be ok. However, if the gifts consist of food, drink, tobacco, or any voucher that can be exchanged for goods, then that is not tax deductible.

There is a further relaxation of the rules where a company makes a gift of one of their products, and the item is given away during the ordinary course of that business, to advertise to the public generally. For example, if the business is a chocolatier, then it could make gifts of chocolates to the general public for promotional purposes and obtain a tax deduction for the cost of the chocolates.

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year.

If the gift is not a trivial benefit, then the employee is taxed via a P11D form and the employer would then be liable to Class 1A national insurance. The employer could elect to cover these in a Pay As You Earn Settlement Agreement (PSA) with this the employer agrees to settle the liability themselves.

The other types of trivial benefits that are allowed include:

• Taking a group of employees out for a meal to celebrate a birthday
• Buying each employee a Christmas present
• Flowers on the birth of a new baby
• A summer party for employees

If the cost of the benefit is over £50, the whole amount is taxable, not just the excess over £50.

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