COMPLIANCE
SusanBall, employer solutions partner, and LeeKnight, employment solutions director, of RSMUKTax and Accounting Limited, outline the statutory taxation rules and the reporting requirements on employers and third parties of gifts made to or received by employees Should you look a gift horse in the mouth?
A s the end of the tax year
Cash awards Where you give your employee a cash award or gift, or an item or voucher which can be surrendered for cash, then they are reportable at the correct time via payroll and should be subject to tax and NICs regardless of the value. Where your employee is provided with such an award by a third party, the employer (not the third party) has a liability to account for the class 1 NICs and, where due, the apprenticeship levy on the award. This is why communication is key as the employer must subject the combined value of the award, and the tax paid by the third party under pay as you earn (PAYE), to NICs. Small gifts The position is simplified where small gifts are given by a third party to one of your employees (or members of their family or household). This may be exempt from tax and NICs if all the following conditions are met: ● the gift is not provided by the employer, or a person connected with the employer ● neither the employer, nor a person connected with the employer, directly or indirectly procured the gift ● the gift is not made in recognition or anticipation of particular services performed
by the employee ● the gift is not in cash or in vouchers or securities that can be converted into cash ● the total cost to the donor of all eligible gifts to the employee in a tax year does not exceed £250 (including value added tax). The exemption does not apply to non- cash vouchers, but the application of the exemption is extended to non-cash vouchers that are only capable of being used to obtain goods (and which are acquired by way of a gift) by the provisions of section 270 of the Income Tax (Earnings and Pensions) Act 2003. If the gift does not meet the above conditions, unless it has been arranged by the employer, it is the responsibility of the provider to make an annual report to HMRC. The provider will be liable to pay class 1A NICs, but any tax due will be the liability of the recipient unless the provider settles the tax via a HMRC taxed award scheme. Often the giver doesn’t enter into a taxed award scheme, so as the employer you need to consider if you should account for the tax due (particularly where you have knowledge of such gifts due to Bribery Act requirements) or advise employees of their tax obligations. In any event if the gift does not qualify for the small gifts exemption and has been arranged by the employer, it can be treated for tax purposes as if it was provided directly by the employer. The employer will therefore have to consider its obligations to report to HMRC, via either the P11D return or via a
approaches, and with Christmas having passed, it’s a good time to
reflect on whether you have processes in place to ensure that gifts your employees receive from third parties (such as customers or suppliers) are identified and correctly reported to HM Revenue & Customs (HMRC). The rules are complex and can create tax and National Insurance contributions (NICs) implications for you (as their employer), the third party, and the employee. To ensure compliance, communication between the employer, the third party, and the employee is key. The tax and NICs treatment depends on the form of the gift and the employer’s involvement. Where tickets to the theatre or similar are involved this will count as entertainment only if the third-party, or their representative, is present to ‘entertain’ your employees, otherwise it is a gift. The Bribery Act 2010 must also be considered and therefore many employers will have a policy on giving and receiving corporate hospitality and gifts. Furthermore, there is potentially inheritance tax to consider if the value of the gift(s) exceeds £250 where it is made by one individual to another.
...depends on the form of the gift and the employer’s involvement
| Professional in Payroll, Pensions and Reward | February 2020 | Issue 57 20
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