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Employee gifts - VAT & PAYE/NI

Employee gifts - VAT & PAYE/NI

Hi, I'm looking for some help here please.

Company is looking at buying two gifts:

i) For an employee who is leaving. 

ii) For a current employee (yet to be selected) based on a given task.

I believe the Co is able to claim the VAT on both (based on VAT Notice 700/07), but I'm not sure about the PAYE/NI implications of either.

I'd be really grateful on views on any of the above.




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24th Apr 2012 11:17

How much? How long?

How much is being paid for the gifts?  And how long has the employee who's leaving been employed by the company?

It's possible that HMRC's unofficial trivial benefits exemption, or the long service awards exemption may apply.

Whislt you can claim the input VAT on the gifts, you will also need to account for output VAT on cost when you give them, unless they satisfy the business gifts criteria.

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24th Apr 2012 12:01

Answers & more...

Thanks for links Steve

Gift i) was £150 and gift ii) £200

So I don't think they're Trivial.

Realised 'employee' who was leaving was actually a sub-contractor. I think this does fall under business gift rules, so no output VAT due.

Seems to suggest that if we receive some non-monetary consideration from employee for gift then VAT may not be due?  (The gift is a prize for promoting the company) Or am I stretching things here? 

But will this still need to go through payroll then?



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24th Apr 2012 12:32

Business gifts and non-monetary consideration

Output VAT will need to be accounted for on a business gift (where goods are given to someone for no consideration) if the cost per donee per year is more than £50.

The exception to this is if the "donee" provides non-monetary consideration, then it's not a gift (there's consideration) and VAT needs to be accounted for on the value of that non-monetary consideration.

You then have the problem of valuing the non-monetary consideration, and the best estimate, may be the cost (or perhaps retail value) of the goods it's being exchanged for.

If you look at paragraph 3.3 HMRc don't accept that there's non-monetary consideration in the circumstances you describe.

For the gift to the subcontractor, it's over £50 so you do need to account for VAT on cost, but there are no further issues.

For the "gift" to the employee, again for VAT purposes, it's over £50, so you need to account for VAT.  For direct tax purposes, it's a benefit in kind, reportable on form P11D and then liable to Class 1A NIC.  I can't see an exemption that would apply.  You might want to consider a PSA arrangement in these circumstances.

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24th Apr 2012 13:44

Thanks for looking at this Steve.

It's a pain though! ;-)

So basically, we're better off not claiming the VAT, and giving an employee a gift of under £50?


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24th Apr 2012 15:56

Strictly speaking

The correct thing to do is recover the input VAT and account for output VAT on the gifts over £50.

For the employee's gift, even if it's under £50, it may still be reportable on P11D as there's no set threshold for trivial benefits.  The amount to be reported on P11D is the VAT inclusive amount.

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