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Are Employee Gifts Tax Deductible?

Posted 17 Apr 16

There are a number of occasions to celebrate at your workplace with a small gift, be it Christmas’ Secret Santa, an employee’s birthday or end of the year party. There are general rules which govern the treatment of employee entertaining and we are here to examine them.

Although the general rule is that there is no tax relief given on the cost of making business gifts, however, there are certain exceptions to this.

The tax relief only applies to ‘annual parties’ with the cost of £150 per head available to all staff. This amount includes VAT.

In situations when the cost of the parties goes over £150 per head, all the costs are taxable as a benefit in kind.

When referring to a business party, HMRC has the whole event in mind, from the start to the end, including taxis your employees take home and any overnight accommodation if provided. If the limit is exceeded the benefit must be noted in each employees’ P11D, or, the grossed up tax should be paid by the employer through a PAYE settlement agreement.

The amount of £150 applies to all persons involved in the organisation of the party, not just employees. This includes the guests employees bring with them.

When it comes to business gifts, there are important rules to be aware of. There is no tax relief on the costs of business gifts, unless:

An item is provided with means of advertising to the public generally (e.g. business sample)
An item incorporates a conspicuous advertisement provided it costs less than £50 and is not part of a series of gifts to the same person which come to more than £50 in that accounting period. No relief is permitted if the gift includes food, drink, tobacco or an exchangeable voucher.

A gift an employer offers to an employee is deductible in the employer’s accounts, unless gifts are also provided to others. You can also reclaim VAT on the cost of an employee’s gift.

You can make a business gift to:

A charity
The Historic Buildings and Monuments Commission for England
The Trustees of the National Heritage Memorial Fund

A cash donation is not treated as a business gift, thus a gift of cash to a charity will not be tax deductible. However, if you are a UK taxpayer you can make a Gift Aid declaration, which will allow the recipient to obtain tax relief by way of a refund.

If you have any further questions in regards to business gifts or if you’re in doubt if your gift is taxable, contact us today at Tawanda Accountants and our experts will clear any doubts for you.