BU S I N E S S TA X
SHOULD A GIFT BE TAXED? QUESTION:
O
ne of my employees is getting married. I’d like to give her a wedding gift totaling around £150. It would be a shame for her to
have to pay tax on this gift but if tax is due how should this be reported to HMRC? ANSWER:
T
he gift would be treated as a benefit and ordinarily the employee would pay tax on the value of the gift. There are several methods for
following the end of the tax year in which you
benefits to be reported to HMRC. The most common
provide the wedding gift. Once a PSA has been
is for you to payroll the benefit in ‘real time’ so the tax
agreed, the agreement is continuous until the
liability is paid by the employee through the payroll at
employer contacts HMRC to change the benefits
the time the benefit is received. Alternatively, the
covered or cancel the PSA.
benefit can be declared on form P11D following the end of tax year in which the benefit has been
If you have a PSA in place, you would be liable for any
received. The P11D would then result in the
tax and National Insurance as a result of the gift and
employee‘s tax code being adjusted by HMRC in the
any other irregular benefits. The due date for
following tax year to account for the benefit received
payment of tax & NI under a PSA is 22 October after
previously.
the tax year the PSA applies (or 19 October if you pay by post).
However, if you wish, you can cover the cost of any additional tax on the gift for the employee. To pay
There is no statutory requirement for you to tell your
tax on irregular benefits for your employees you
employee what is included in the PSA. However, you
would need to set up a PAYE Settlement Agreement
may wish to make it clear to her that you have settled
with HMRC. A PAYE Settlement Agreement (PSA)
the tax and NI on the gift, so there is no need for her
would allow you to make one annual payment to
to declare the gift as earnings on her tax return.
cover all the tax and National Insurance due on minor, irregular or impracticable benefits for your employees. To be able to use a PSA, you must seek agreement directly with HMRC. To do this, you must write to HMRC Business Tax and Customs describing any benefits or expenses that you wish to be covered by the PSA. If HMRC agree that a PSA could cover gifts given to employees for weddings, then any gifts to employees of this nature could be included in the employer’s PSA this year and in future years. A PSA can be entered into at any time before 5 July
6
APRIL/MAY 2021
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