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A tax free gift, is it true?!

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A tax free gift, is it true?!

In general, an employer will report gifts made to employees on their annual Benefit-in-Kind Return form P11D meaning that both the employer and employee will pay income tax and national insurance on the value of the gift.

However since 6th April 2016 employers are now, sensibly, able to give tax free gifts to employees up to the value of £50 without the cost or complication of reporting a Benefit-in-Kind.

Such gifts now have a statutory exemption under the Trivial Benefits-in-Kind rule, which must meet each of the following four conditions to qualify for the exemption:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

Practical points

  • This is a useful statutory exemption allowing employers to provide most gifts without needless complication.
  • To be treated as a trivial benefit in kind the gift must cost under £50. If your gift costs £51 then the whole amount will be taxed on the employer and employee as a benefit in kind.
  • The gift must be freely given and not as a reward for employee performance (examples include birthday gifts, Christmas presents, a gift on the birth of a new baby, the cost of a summer garden party).
  • Whilst cash or cash vouchers cannot be given, store / gift vouchers may be given.
  • There is no change to the amount of tax relief the business will receive on the cost of the gift. For example a garden party may still count as entertaining which is not allowed for corporation tax.

Source info: https://www.gov.uk/government/publications/tax-exemption-for-trivial-benefits-in-kind-draft-guidance/tax-exemption-for-trivial-benefits-in-kind-draft-guidance

Related topics

Entertaining and Meals Out – What is the correct tax treatment?

Are gifts to customers allowable against tax?

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