Tax-free Christmas gifts
Dec 06, 2019
It’s the time of year for gifts and giving. Here are a couple of reminders of how you can enjoy giving gifts with the added benefit of them either qualifying for tax relief, or being tax-free altogether.
Gifts to employees
Remember that certain gifts to staff at Christmas are tax-free if structured correctly. Ever since April 2016 employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax-free.
The rules were brought in as a simplification measure, so that certain benefits in kind do not now need to be reported to HMRC, as well as being tax-free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.
Conditions for the exemption to apply
- the cost of providing the benefit does not exceed £50
- the benefit is not cash or a cash voucher
- the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
- the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
This exemption will generally apply to small gifts to staff at Christmas, on their birthday, or on other occasions, and includes gifts of food, wine, or store vouchers.
Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 for the tax year.
Please feel free to contact us if you are considering taking advantage of this exemption.
Gifts to charity
If you’re a higher rate taxpayer and you’re making a donation to charity, try to “Gift Aid” any payments you make, to provide additional benefit to the charity and to obtain additional tax relief on the payment yourself.
For example if you make a £20 cash donation to charity, the charity is able to reclaim a further £5 from HMRC – making a gross gift of £25. If you’re a 40% higher rate taxpayer, then you’re able to claim a further £5 tax relief under self-assessment, reducing the net cost of your donation to £15.
Be aware that you’re required to make a declaration that you’re a UK taxpayer, and if you haven’t suffered enough UK tax to support the Gift Aid amount then you’ll be taxed on the shortfall.
Remember that Gift Aid doesn’t just apply to gifts of cash. Many charity shops will sell donated items on your behalf and are now able to treat the sale proceeds as Gift Aided donations.
It is also possible to gift quoted securities and land and buildings to charity and to claim Gift Aid on the market value of those assets.