A client is looking to give an employee an expensive watch (~£1K) for excelling during the last year. Employee earns at a rate of £8,500 or more a year. No further background, I'm afraid.The notes I've drawn up are as follows:
Does not meet the criteria for tax-free gift: not given on personal grounds, or given as a mark of personal esteem, appreciation or to mark an event.
Value of the watch is not trivial.
Does not qualify as a long-service award.
Meets criteria for incentive award.
Taxable amount higher of: second-hand value and cost.
Employee is within benefits code.
P11d required and would suffer Class 1A.
If anyone could offer any further advice, or correct me, it would be appreciated.
Replies (10)
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Why do you say it is not given as a mark of personal esteem or appreciation? That seems to be at odds with you saying that it was given to him for "excelling".
What the OP means
Is that it has not not (double not deliberate) been given by reason of the employment, and so will be considered to have been given by reason of the employment.
Not Class 1
I thought that, but it is not liable to Class 1, as it cannot be turned into cash without the employee doing something to turn it into cash. It is money's worth, but it is not payrollable, and thus goes on the P11D, as the OP says.
Not sure I follow you, Portia (but agree with the conclusion)
Surely it will always be the case that the employee has to do something (ie sell) to turn a non-cash asset into cash?
Is it not simply the case that a watch falls outside the statutory definition of "readily convertible asset"?
Indeed
Perhaps you would share with us the wording of ITEPA 2003, section 702(1)(b)(iii) BKD? I refer, of course, in particular, to the words "without anything done by the employee" in parentheses in that section. The whole point of an RCA (other than those quoted on a recognised exchange) is that both the asset, and the means to turn it into cash are provided to the employee.
Indeed Indeed
I don't disagree, Portia - strictly, the provision that you refer to covers the watch, but I didn't envisage that it was intended to catch such assets, especially if you consider the typical scheme or arrangement that it was intended to block.
In any event, we agree on the treatment.
PAYE Settlement
As above it's a P11d benefit, as it seems to be a one off it can be covered by a PSA should the employer wish to take the hit for the tax and the class 1A