Is Tax Payable on Festive Gifts?

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Is tax payable on festive gifts

The holidays are coming, the holidays are coming, tis’ the season……..to get caught with your pants down.  We all love Christmas and the giving of gifts to the team and loyal customers but what are the tax consequences of doing so?  We don’t want to be the Grinch but below are some key considerations to take into account before flashing the cash.

Cash

A cash gift paid to a business you would expect to be treated as income and therefore be taxable.  Whilst this is the case for cash gifts from an accounting point of view it does not always follow that it is taxable.  If the business can reasonably assume the payment is a gift it isn’t taxable even if it comes from a customer.

Where the cash gift is passed on to Directors or employees you must consider whether the benefit in kind rules come into play or it might be taxed as salary.  A cash gift passed on to employees or Directors counts as employment income and is liable to tax and NI.  If you use the money to buy gifts for employees the benefit in kind rules apply meaning no employee NI to be paid.

Non-cash

Gifts of goods or services from third parties can be taken tax and NI free by Directors and Employees provided certain conditions are met:

  1. The gift came from a 3rd party
  2. Your business or anyone connected with it did not acquire the gift (customers don’t count as a connection in this regard)
  3. The gift isn’t a reward for specific services provided in the course of doing your job
  4. The gift is not cash or use of services of the donor
  5. The cost of all gifts from the donor to the same person does not amount to more than £250 in the same tax year

There is a separate tax and NI exemption for gifts from third parties in the form of entertainment such as tickets to an event or a meal.  Unlike gifts of goods there is no £250 limit so an all expenses trip to Lapland comes tax and NI free.  We are also partial to the odd music or sporting event so please feel free to spread the Christmas love.

Summary

A cash gift received by the business is not usually subject to corporation tax but if it’s passed to a Director or Employee it’s taxable like salary.  Non-cash gifts worth up to £250 are usually tax and NI exempt and a gift of entertainment e.g. meals or drinks is exempt regardless of value.

For full HMRC guidance please see  HMRC’s internal guidance.

Disclaimer

The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this article. Accordingly, the information on this article is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice or services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser.

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