Inaccuracy penalties, Scottish tax bands, The Santa clause

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Even in the middle of the SA tax return season, HMRC continue to issue penalties for errors in past returns. In many cases those penalties can be suspended, and we have some tips to help you achieve the best outcome for your client. We also explain how the Scottish income tax bands for 2017/18 will work. Finally, in case you have not completed your Christmas shopping, we have a reminder of the “Santa clause” regarding tax-free gift vouchers for employees.

What follows is an extract from our weekly tax tips as explained in the box at the side (or below if you’re viewing this on a mobile device)

The Santa clause

If your clients are feeling generous towards their employees this Christmas, you can advise them to provide each employee with a gift voucher worth up to £50. These vouchers are tax and NI free, if certain conditions are met, and a company can even give tax-free vouchers to its directors.

This tax-free gift possible due to the new statutory exemption for trivial benefits, which applies from 6 April 2016 (see page 4 of Employer Bulletin). The vouchers must not be exchangeable for cash, so if the shop allows the customer to receive change in cash when using the voucher, it doesn’t qualify as a tax-free trivial benefit.

Also, the gift vouchers (or other non-cash benefit) must not be given as reward for services. So the employer can’t say to his staff; “If you finish all the orders by 24 December I’ll give you each a voucher”. He has to surprise them with the gifts, but he doesn’t have to give the same amount to everyone in order to make it tax-free.

The company can also be generous to its management, but the directors and their families can only receive up to £300 of tax-free trivial benefits per tax year. There is no limit to the number of tax-free vouchers an employer can give to other staff members, as long as each gift is not worth more than £50.

Trivial benefits, VAT on market stalls, Taxable employee expenses

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There are many influences which add to the constant changes for the UK tax system, but the top three are; new tax legislation, rulings in tax cases, and alterations in HMRC practice. We had examples of each of these last week; new rules about trivial benefits enacted by FA 2016, VAT treatment of market stalls decided by an Upper Tax Tribunal, and changes to the P11D proceeds effective from 6 April 2016.

This is an
extract from our topical tax tips newsletter dated 27 October 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Trivial benefits 

For years HMRC has applied a concessionary tax exemption for trivial benefits provided by employers to their employees. This exemption has been given statutory backing in ITEPA 2003, ss 323A-323C, introduced by FA 2016, s 13 with effect from 6 April 2016. 
The new rules are actually very generous. The employer can provide a trivial benefit to any employee without having to justify his reason, on as many days in a tax year as he wishes, although there is a cap on the value of benefits provided to close company directors and their families (see below). 
If the benefit meets the following three conditions it can be paid with no tax or NIC for employee or employer, and business can claim tax deduction for the cost. The benefit must: 
a) cost no more than £50; 
b) not be a reward for services or in any way contractual; and 
c) not be cash or voucher which can be exchanged for cash. 
In theory the employer could provide a £50 gift voucher to every employee on every working day of the year, but that is likely to be seen as a reward for services, so it would break condition b) above. 
HMRC have provided some detailed guidance on these new rules which includes examples of the wide range of situations in which the trivial benefit exemption can be used. It is certainly worth reading to help answer clients’ questions in this area. 
Directors and office-holders of close companies are only permitted to receive up to £300 of trivial benefits per tax year. That total includes the value of trivial benefits provided to the director’s family members. This allows the company to buy six £50 gift vouchers to give to the director/shareholder at intervals (they must be separate gifts), who is then free to spend or distribute those gift vouchers as he wishes.

This is an
extract from our topical tax tips newsletter dated 27 October 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The
full newsletter contained the remainder of this item plus links to related source material and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week. You can obtain future issues by registering here>>>