We all like to receive gifts but are you aware that there are also tax breaks when giving gifts too! Provided that a few simple guidelines are followed then a business can successfully deduct the cost of providing them against their profits and in turn, pay less tax.
Giving of gifts by a business’ normally fall into two categories, gifts to employees and gifts to customers.
Under normal rules, if an employer were to give its employees a gift then it would be taxable on the employee. However, by following a few simple guidelines outlined below, not only can the employer give gifts to their employees tax-free but they can also offset this cost against their business profits:
In order to qualify the individual gift to the employee must….
Not be cash or a cash voucher – any cash gifted is automatically taxed regardless of how much is given, the same also applies to a cash voucher which is essentially a voucher which can be exchanged directly for money, a common example would be a regular cheque.
This shouldn’t be confused with a “non-cash voucher” which is where the voucher can be exchanged for goods or services and not cash, examples here would include gift cards for some well-known coffee chains, restaurants, cinemas or likewise.
Cost the business less than £50 per employee – new tax rules were introduced in April 2016 which meant that provided the cost did not exceed £50 per employee per gift then the employee would receive the gift tax-free. Provide the rules are met there is no limit to the number of gifts an employer could make to an employee. The only exception to this is where a company director is also an employee. In these cases, there is also an additional restriction where no more than £300 worth of gifts can be received in a tax year.
Not be in return for the employee giving up salary – this is commonly known as salary sacrifice or salary swap arrangements and shouldn’t be a condition of receiving the gift.
Not be in reward for any services performed – as soon as there is a direct link between receiving a gift in return for “just doing your job”, e.g. for reaching a sales target then it would become taxable.
Examples gifts which could be given are:
- Bottles of wine or other similar drinks
- Boxes of chocolates
- Turkey’s at Christmas
- Christmas Hampers
- Restaurant vouchers
Larger Employee Gifts
There may be occasions whereas an employer you may wish to give your employees a gift which doesn’t meet the above guidelines. In these circumstances, the business would still obtain the deduction but the employee would then be taxed on the gift.
As an employer this is far from ideal and as such HMRC provide an option to deal with it. This commonly known as a PAYE Settlement Agreement and it is an arrangement where the employer can pay the employee’s tax directly to HMRC without the employee being aware and so avoiding any awkward conversations.
The rules for giving gifts to customers are slightly less generous than to employees but provided the guidelines below are followed it is still possible for the business to obtain a deduction against their profits.
In order to qualify the gift to customers must:
Be an item which is part of the trader’s trade to provide – for example, if a sweet manufacturer chose to give away a free chocolate bar to all of its customers then it would be able to deduct the cost of this from their profits, i.e. they are making a gift of an item they would normally provide as part of their trade.
This would differ if for example, a garage decided to give away a free chocolate bar to all its customers. Chocolate bars aren’t provided as part of a garage’s trade and so the cost wouldn’t qualify for a deduction.
Contain a conspicuous advert for the business and meet all the following criteria:
- Not be food, drink, tobacco, tokens or vouchers
- Cost less than £50 per customer
Examples of such gifts could be a desktop calendar, diaries with the business’ name or logo on.
So whether you are giving or receiving gifts this Christmas time, by following the simple guidelines outlined above you can do it and save tax at the same time.
We are chartered accountants and tax advisors with offices in the Midlands and in London. Our local offices provide support to local businesses with sound tax and accounting advice and good local economic knowledge, talk to our teams in Northampton, Daventry, Rugby and London.