Business Tax

SHOULD A GIFT BE TAXED?

QUESTION:

One 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:

The 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 benefits to be reported to HMRC. The most common is for you to payroll the benefit in ‘real time’ so the tax liability is paid by the employee through the payroll at the time the benefit is received. Alternatively, the benefit can be declared on form P11D following the end of tax year in which the benefit has been received. The P11D would then result in the employee‘s tax code being adjusted by HMRC in the following tax year to account for the benefit received previously.

However, if you wish, you can cover the cost of any additional tax on the gift for the employee. To pay tax on irregular benefits for your employees you would need to set up a PAYE Settlement Agreement with HMRC. A PAYE Settlement Agreement (PSA) would allow you to make one annual payment to 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. following the end of the tax year in which you provide the wedding gift. Once a PSA has been agreed, the agreement is continuous until the employer contacts HMRC to change the benefits covered or cancel the PSA.

If you have a PSA in place, you would be liable for any tax and National Insurance as a result of the gift and any other irregular benefits. The due date for payment of tax & NI under a PSA is 22 October after the tax year the PSA applies (or 19 October if you pay by post).

There is no statutory requirement for you to tell your employee what is included in the PSA. However, you may wish to make it clear to her that you have settled the tax and NI on the gift, so there is no need for her to declare the gift as earnings on her tax return.

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This article is based on current tax guidance at date of publication and may be subject to change. Any advice shared here is intended to inform rather than advise. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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