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MONEY
Page 34
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MATTERS
PARTY POOPERS
Despite a tough year you still want to thank your drivers for their loyalty and hard work when Christmas comes. A bonus, or a staff party perhaps? Before you decide, better check that the taxman won't take an interest...
auliers, like other employers, often choose Christmas as the appropriate time to reward their staff. This reward might take the form of a cash bonus, a voucher or even a Christmas turkey. But what are the tax implications of such "gifts"?
Cash payments
Christmas presents paid in cash to employees by their employers are invariably classified as an emolument. This means they will be chargeable for income tax so the employee will be liable to PayAs-You-Earn (PAYE). The cash present will also be liable to National Insurance Contributions (NIC). Would it make any difference, for tax purposes, if the cash came from someone other than the employer? Probably not, as such payments are still chargeable to tax where there is a widespread custom for such presents to be given and there is an expectation that such presents come with the job.
Gifts
There is an automatic assumption that expenses or benefits provided by an employer to his employees are treated as payment and thus liable for tax. The exceptions to this rule are few and far between.
Case law shows a variety of Christmas gifts being taxed, such as when a company arranged for all its male employees to be sup plied with clothing from a local tailor.
One exception to the general rule is when an employer is an individual and can show that the gift was made in the normal course of his domestic affairs or personal relationships. For example, a haulier who employs his son as transport manager could give him a Christmas present without falling foul of the tax rules.
However, almost all Christmas gifts should be reported as a benefit on the relevant forms. Directors and employees earning over 0,5 oo per year need form P D; those earning less than that amount need a P9D.
Third-party gifts
The Revenue Extra Statutory Concession A70A provides exemption from tax for small gifts made to employees by third parties, but there are conditions.
The gift must not be money— or vouchers or securities which could be converted into money. The gift must not have been procured for the employee by the employer but must be a genuine gift from a third party. A couple of bottles of whisky to the traffic office from a grateful customer would fall into this category.
The gift must not be in recognition of the performance of a particular service and the total cost of all gifts throughout the year to an employee must be less than i15o.
As for national insurance, a Christmas bonus from a third party is one of the few payments that are not treated as earnings for contributions purposes. To qualify for this exception the bonus would have to be paid by some unconnected third party who bore the ultimate cost.
The most plausible examples of these payments are gratuities, tips and service charges.
But what if the employer has "arranged" for a third party to make a Christmas gift to an employee? In such cases the employer becomes responsible for advising the employee and the Revenue of the tax value of the gift so a charge can be made.
Employers might want to make use of the Taxed Award Scheme. This is an arrangement made with the taxman to meet the liability of employees on the grossed-up value of non-cash incentive prizes and awards.
Alternatively the employer could use his own PAYE Settlement Agreement to meet any cost arising from a third party gift, as long as the benefits fall within the settlement requirements by being "minor" or "irregular".
This might be a useful and fair way of dealing with, for example, a present of crates of wine provided by a third party for use at a staff Christmas party.
Vouchers
Cash vouchers provided for employees because of their employment are taxable through the PAYE scheme at the time the voucher is provided, and employers should also apply NIC.
Non-cash vouchers provided for employees are also taxable, but not under the PAYE scheme, and NIC is not normally payable.
• by Francesca lagerberg
Francesca Lagerberg ACA is Barrister of the Tax Faculty of the Institute of Chartered Accountants in England and Wales.
PART1E.S
• A party is one of the few ways in which an employer can give a taxfree benefit to his employees, but even here there are conditions limiting the value of the benefit: these are set out in full in the Revenue's Extra-statutory concession A7013.
This concession allows for an annual party, or similar function, to be held at any time of the year without tax being due on the benefit arising to each employee, provided the event is open to staff generally and expenditure does not exceed 275 per head per annum.
It is possible to hold more than one function in the year as long as the £75 total is not exceeded. If it is, tax is payable on the full amount of the benefit of that function.
To qualify the party must be open to all staff, so a function restricted to directors and the company's major clients would not qualify for concessionary treatment.