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Tax consequences of watch gift to employee

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I have a client who is considering purchasing a watch to give to an employee in recognition of their achievements; what are the tax consequences of this?

I believe this should be reported on a P11D and Class 1A paid on the cost of the watch, but what are the other consequences. Namely:

  • How does the employee pay tax on the value of the benefit?
  • Does the employee have to pay Class 1 NI on the value of the benefit?
  • Can the employer have corporation tax relief on the cost of the watch, given that it meets the criteria of allowable expenses in the same way that a cash bonus does?
  • Given the above, can input VAT be reclaimed?

The employer doesn’t want to give this gift (that the employee hasn’t asked for) and have the employee landed with a big tax bill; they think it unfair that the employee might lose disposable income for receiving a non-cash gift. So, is there a way to avoid the employee being lumbered with the tax (perhaps a PSA?).

Thank you.

Replies (24)

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By kathyk0410
11th Nov 2021 18:14

Yes, you can deal with it under a PSA - though as I put on another thread we applied for one in March 21 (similar to yours) and we have only had a response this week.
https://www.gov.uk/hmrc-internal-manuals/paye-settlement-agreements/psa1070
"one-off gifts that are not minor" which I assume this is.

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RLI
By lionofludesch
11th Nov 2021 18:34

Does it qualify for the Taxed Award Scheme?

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By David Ex
11th Nov 2021 18:41

(Tax free) Long service award?

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Jason Croke
By Jason Croke
12th Nov 2021 08:55

From a VAT perspective, if the value of the watch is less than £50 then you can use business gift rules and can reclaim the VAT, however, if the watch costs more than £50 (which presumably it would be, doubt a gift of a Swatch would impress the employee), then the business can give the watch away but it cannot reclaim the input tax.

The only reason why a business can reclaim VAT is on the basis it makes a taxable supply of those goods, giving something away for free is non-business and therefore not recoverable - except for the £50 gift rule.

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Replying to Jason Croke:
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By Tax Dragon
12th Nov 2021 09:37

The tax system talks with forked tongue here then. Reason it's taxable on the employee (subject to specific exemption) is that it's not given away for free - it's a reward for services rendered*.

*That's the logic for the charge anyway. It's not quite the wording ITEPA uses (eg at s62) and maybe that's where the forking occurs.

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Replying to Tax Dragon:
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By The Dullard
12th Nov 2021 10:31

Well based on that argument there's then output VAT to be accounted for on the supply of the watch for a barter consideration, which negates the benefit of claiming the input VAT. N'est ce pas?

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Replying to The Dullard:
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By Tax Dragon
12th Nov 2021 10:51

Mais oui, bien sûr. D'eau!

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Replying to Tax Dragon:
Jason Croke
By Jason Croke
12th Nov 2021 10:31

There will often be forking between VAT and other taxes, I think that is why people generally say "forking hell" whenever a VAT question is raised. :)

https://www.gov.uk/guidance/business-promotions-and-vat-notice-7007#sect2

Para 2.2 states "Business gifts cover a wide range of items from brochures, posters and advertising matter to expensive goods of the kind given as ‘executive presents’ and include long service awards and retirement gifts, etc..."

Then Para 2.3 states "You do not have to account for VAT on business gifts made to the same person so long as the total cost of all gifts you make to that person does not exceed £50, excluding VAT, in any 12-month period"

Agree that we do have a forking, a business can get VAT back on a Christmas party for staff or any other event that includes the staff, taking out staff for a meal, etc and that's all business related and recoverable for VAT, but give them a free carriage clock and its not recoverable.

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Replying to Jason Croke:
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By Paul Crowley
12th Nov 2021 11:01

Good one

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By ireallyshouldknowthisbut
12th Nov 2021 10:05

Are watches still "a thing"?

I would be really careful to ensure the employee actually wants a watch.

There seem to be 3 views on watches;
(a) cheap and disposal items ever 2-3 years
(b) things of beauty, I have £30,000 of watches in my house
(c) I have a phone

Not sure any of those types would want a watch from the employer.

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
12th Nov 2021 10:25

ireallyshouldknowthisbut wrote:

(c) I have a phone

A phone ? It's like going back to the Victorian days of pocket watches.

Much easier to look at your wrist.

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Replying to lionofludesch:
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By The Dullard
12th Nov 2021 10:31

I think Apple and Samsung have that covered too!

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Replying to lionofludesch:
By ireallyshouldknowthisbut
12th Nov 2021 10:54

lionofludesch wrote:

ireallyshouldknowthisbut wrote:
(c) I have a phone

A phone ? It's like going back to the Victorian days of pocket watches.

Much easier to look at your wrist.

Check the young folk's wrists - few of them have watches now. They seem to be the preserve of folks born prior to the 80's. I have cheap ones from Argos. Same model for about 20 years.

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
12th Nov 2021 11:04

ireallyshouldknowthisbut wrote:

lionofludesch wrote:

ireallyshouldknowthisbut wrote:
(c) I have a phone

A phone ? It's like going back to the Victorian days of pocket watches.

Much easier to look at your wrist.

Check the young folk's wrists - few of them have watches now. They seem to be the preserve of folks born prior to the 80's. I have cheap ones from Argos. Same model for about 20 years.

Weskits and watchchains will be the next fashion.

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Replying to lionofludesch:
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By lh3f9764bg1g
15th Nov 2021 10:47

I think the hipsters have already got the weskits and watchchains sorted!

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
15th Nov 2021 12:40

It is true.

We gave our son for his 21st a 1940s/ 1950s Rolex (His great grandfather took it as security way back for a bet on a nag that lost.) I had it reconditioned for him (cleaned/new glass/new strap/polished, a few hundred pounds worth, also bought a polished box to use to store it)

I think he has worn it just a couple of times in the 9 years since then.

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Replying to DJKL:
RLI
By lionofludesch
15th Nov 2021 12:56

DJKL wrote:

It is true.

We gave our son for his 21st a 1940s/ 1950s Rolex (His great grandfather took it as security way back for a bet on a nag that lost.) I had it reconditioned for him (cleaned/new glass/new strap/polished, a few hundred pounds worth, also bought a polished box to use to store it)

I think he has worn it just a couple of times in the 9 years since then.

A Rolex ?

I just want a watch which tells me what time it is.

Scots are such wastrels.

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Replying to lionofludesch:
paddle steamer
By DJKL
15th Nov 2021 13:34

No, we are canny, it was taken as security by my wife's grandfather (a bookie before bookies had shops) for likely a £5 or £10 bet, so a pretty cheap Rolex.

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Replying to DJKL:
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By Leywood
15th Nov 2021 15:59

Their boxes alone are selling for £300+ at the moment

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Replying to Leywood:
paddle steamer
By DJKL
15th Nov 2021 17:24

No box and one of the less valuable ones, but still a nice watch.

I have my late father's watch which is also Swiss (lesser brand) which he got for his 21st and is a similar age to the Rolex, catch is in monetary terms it is not worth having cleaned as even if it did keep good time it would be worth about £50. I also still have my 1976 (16th) Timex self winding watch, again timekeeping a bit out, it is on about strap six but it still nearly functions.

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Replying to DJKL:
RLI
By lionofludesch
15th Nov 2021 17:32

DJKL wrote:
. I also still have my 1976 (16th) Timex self winding watch, again timekeeping a bit out, it is on about strap six but it still nearly functions.

Made in Dundee ?

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Replying to lionofludesch:
paddle steamer
By DJKL
15th Nov 2021 13:35

Duplicate

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Replying to ireallyshouldknowthisbut:
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By David Ex
12th Nov 2021 11:10

ireallyshouldknowthisbut wrote:

Are watches still "a thing"?

End of May 2019, Watches of Switzerland floated at 270p. Currently trading at 1288p. Someone’s buying ‘em!

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Replying to David Ex:
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By lh3f9764bg1g
15th Nov 2021 10:49

Footballers . . . . . that's who's buying them.

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