Gifts too 'trivial' to tax?

A recent article suggests that an unpublicised change to the way the Revenue taxes gifts to employees could mean that many small businesses might be paying tax unnecessarily.

The report in This is Money tells about the case of a small business which had given its employees Christmas hampers worth about £50 a head for a number of years. The tax man decided that the staff should have been paying tax and NIC on this gift and, as the company didn't want to pass this burden onto the staff, picked up the bill for £4,000 themselves.

The company continued to pay tax through PAYE Settlement Agreement (PSA), though reduced the content of the hamper to about £40. They later learnt that firms could be entitled to a dispensation if gifts given to employees were considered to be 'trivial'. However, there does not seem to be a definition of trivial and it is up to the employers to negotiate a figure with the Revenue.

After a short correspondence the Revenue responded that tax should no longer be collected when employers provide certain taxable benefits that are trivial in amount. Although the tax is now nil, the Revenue, according to the report, would not refund the tax paid on previous years.

However, time is short for any claims on this. PSAs for the 2003-4 tax year, which has just ended, have to be agreed with the Revenue by July 5.

More information about PAYE Settlement Agreements is available in a free leaflet IR155 available from the Inland Revenue on 0845 9000 404.