Contractors' Questions: Can I buy my company secretary a tax-free gift?

Contractor’s Question:  I would like to buy something for my limited company secretary for Christmas to say thank you for all his hard work during the year.

What is best way to do this and, similar to the Xmas party allowance, I assume there is no tax to pay if the gift’s value is less than £150. Am I right?

I was thinking of spending about £50, but if the allowance goes up to £150, might it be just as worthwhile to buy something of that value, instead?

Expert’s Answer: I think you are getting confused between Her Majesty’s Revenue & Customs’ approach to an office party and to their rules on gifts. They are NOT the same thing. 

Basically, where a company spends NO MORE THAN £150 per person on a party (per year), then HMRC will allow this as a company expense and not look to the individuals attending the party for any tax on the ‘benefit-in-kind’, nor for any NI.  For those thinking of using this regulation, contractors should note that HMRC can (and often do) take a very narrow view on this exemption and companies should therefore exercise great care in not exceeding the per person limit of £150, as tax and NI will then become due on the total expenditure (and not just the excess over £150) where the limit is exceeded. 

The good news is that the employees may bring their spouse/partner/friend along to the party and they too will gain benefit from this exception.  It is also worth noting that this exemption applies equally to a “one-person” company, such as yours.

In contrast, the rules on “gifts” are very different. Strictly speaking, ALL benefits received are subject to tax and NICs, although where the “gift” is given with the intention to promote the business (such as pen with your company logo engraved on it) then this rule does not apply.

In theory though, there is no exemption on gifts. However HMRC’s guidance to their own staff says that “…..sensible practical administration of the tax system determines that benefits of a trivial nature (for example, a seasonal gift of a turkey or an ordinary bottle or two of wine) should not be charged as a benefit. Anything more lavish in quality or quantity remains chargeable.”

So I recommend forgetting the gift and going instead for a slap-up meal! Happy Christmas!

The expert was Barry Roback FCA, director at Privilege Accounts, a tax and accounting specialist for contractors and the self-employed.

Thursday 22nd December 2011