May, in our house in a month of celebrations, with the youngest and oldest members of our family having their birthdays (along with many other friends and family).
For this reason, the May post had to include celebrations, parties and gifts! And as an additional gift to me this post will also cover multiple tax areas.
Employee Gifts – HMRC guidelines allow businesses to spend up to £50 on a gift for an employee without it becoming taxable. This is classed as a “trivial benefit”. This cost is then tax-deductible within the business accounts and also reduces NIC liability accordingly. WIN WIN!! get gifting to your employees 🙂 but as always in tax it isn’t that simple, there are a few additional rules:
- The gift must not be stipulated in the employee contract.
- Cash and cash vouchers are not eligible, however high street vouchers or gift cards can be included.
- The gift must not be given or perceived as a reward or recognition for employee performance, it must be on a “just because” basis. This makes the festive season the ideal time to utilise the opportunity.
- For Directors of “close” companies the value of trivial benefits to each Director can not be worth more than £300 in a tax year.
Employee Celebrations – The cost of an annual staff party or similar function is allowed as a deduction for tax purposes, however it is only allowable given certain conditions are met as part of the tax relief rules for employee gifts and celebrations.
- The event(s) must be for individuals classed as being employed by the business and their guests. (Sorry you can’t just invite your friends)
- All employees must be invited to the event(s), which must be held at a specific location. (Shocking how many invites get lost these days….only messing)
- The event(s) must be annual.
- Former and previous employees don’t qualify, nor do subcontractors or shareholders that do not work in the business. If you entertain anyone else, this counts as ‘business entertaining’ rather than staff entertaining, and you can’t claim either tax relief or VAT on the cost of entertaining those people.
- The total cost of all annual events for employees must not go above £150 per head including VAT for each person.
- When calculating the cost per head, all costs must be included, such as transport to and from the event, accommodation and VAT.
Gifts to clients – HMRC allows you to give a business gift worth up to £50 to any one person in a tax year. Note though it must be a business gift for example, a diary. However, for it to be a deductible expense and not classed as entertaining it must contain advertising, or be an item that you would normally trade (a free sample).
If the gift costs more than £50, HMRC will disallow the whole amount, not just the amount over £50!
Inheritance Tax Gifts – There are a number of ‘gift’ rules/allowances for inheritance tax that can result in the gift being tax -free:
- Gifts more than seven years before you die
- Gifts to a spouse or UK charity
- Small Cash Gifts – up to £250 per year to as many people as you like.
- Wedding Gifts – see previous post
- normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
Gifts to Charity – through all taxes gifts to charities are encouraged;
- giving 10% of your estate to charity could reduce the inheritance tax rate from 40% to 36%,
- giving to charity can increase the tax rate bands potentially reducing your marginal tax rate form 40% to 20%
- giving to charities is a deductible business expense for corporation tax.
As if helping a great cause isn’t incentive enough.