There are specific rules regarding the liability to Inheritance Tax (IHT) on gifts made during a person’s lifetime. In most cases, gifts made during a person’s life are not taxed at the time they are given.

These lifetime gifts are referred to as “potentially exempt transfers” (PETs). The gift becomes exempt from IHT if the giver survives for more than seven years after making the transfer, commonly referred to as the seven year rule. There were expectations that this rule might have been changed as part of the Budget measures, but no changes were made.

If the giver dies within three years of making the gift, the IHT treatment is as if the gift was made upon death. If death occurs between three and seven years after the gift, a tapered relief applies.

The IHT rates on the amount exceeding the IHT nil-rate band are as follows:

• 0 to 3 years before death: 40%
• 3 to 4 years before death: 32%
• 4 to 5 years before death: 24%
• 5 to 6 years before death: 16%
• 6 to 7 years before death: 8%

If you give away an asset but continue to benefit from it, this is considered a “gift with reservation,” and the value of the asset will still count towards your estate. Examples of gifts with reservation include:

• Giving your home to a relative but continuing to live in the gifted property.
• Giving away a caravan but still using it for holidays without charge.
• Donating a valuable painting but still displaying it in your home.

           1 December 2024 – Due date for Corporation Tax payable for the year ended 28 February 2024.

           19 December 2024 – PAYE and NIC deductions due for month ended 5 December 2024. (If you pay your tax electronically the due date is 22 December 2024).

           19 December 2024 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2024. 

           19 December 2024 – CIS tax deducted for the month ended 5 December 2024 is payable by today.

           30 December 2024 – Deadline for filing 2023-24 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2025-26.

           1 January 2025 – Due date for Corporation Tax due for the year ended 31 March 2024.

           19 January 2025 – PAYE and NIC deductions due for month ended 5 January 2025. (If you pay your tax electronically the due date is 22 January 2025).

           19 January 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2025. 

           19 January 2025 – CIS tax deducted for the month ended 5 January 2025 is payable by today.

           31 January 2025 – Last day to file 2022-23 self-assessment tax returns online.

           31 January 2024 – Balance of self-assessment tax owing for 2023-24 due to be settled on or before today unless you have elected to extend this deadline by formal agreement with                  HMRC. Also due is any first payment on account for 2024-25.

Providing Christmas gifts can be a thoughtful gesture, but it’s essential to understand the tax consequences to avoid unexpected liabilities. The tax treatment for gifts differs depending on whether they are for staff, or customers and suppliers. Here’s a breakdown:

1. Gifts to Staff

Tax-Free Gifts: Trivial Benefits

• Conditions: A gift can qualify as a tax-free trivial benefit if:
  • It costs £50 or less per employee.
  • It isn’t cash or a cash voucher (non-cash vouchers like store vouchers are fine).
  • It isn’t a reward for performance or work.
  • It isn’t provided under a salary sacrifice arrangement.
• Examples: A box of chocolates, a bottle of wine, or a store gift card under £50.
• Tax Implications:
  • If all the above conditions are met, there’s no need to report the gift to HMRC, and it’s exempt from Income Tax and National Insurance Contributions (NICs).

Non-Trivial Gifts

• If the cost of the gift exceeds £50 or fails to meet any of the above conditions:
  • The entire value (not just the excess over £50) becomes taxable.
  • The benefit must be reported on form P11D, and Class 1A NICs apply.
  • Employers may choose to cover the tax via a PAYE Settlement Agreement (PSA).

Deductibility for the Employer

• Gifts to staff are generally tax-deductible for the business as they are considered part of employee welfare expenses.

2. Gifts to Customers and Suppliers

• General Rule: Gifts to customers and suppliers are treated as business entertaining, which is not tax-deductible for corporation tax purposes.
• Exceptions:
  • The gift is not food, drink, tobacco, or vouchers.
  • It bears a clear business logo or advertisement.
  • The total value per recipient in a tax year does not exceed £50.
• Examples of Deductible Gifts:
  • Branded pens, mugs, calendars, or diaries.

VAT Considerations:

• Input VAT on customer gifts can usually be reclaimed, provided the gift meets the criteria for tax deductibility.
• If the total cost of gifts to a single customer or supplier exceeds £50 in a 12-month period, VAT must be accounted for as output VAT on the value of the gifts.

Key Considerations

Record-Keeping: Maintain clear records of the cost, nature, and recipient of all gifts to support your tax position in the event of an HMRC enquiry.

PAYE Settlement Agreements (PSA): For gifts to employees that do not qualify as trivial benefits, a PSA can be used to simplify tax reporting and cover the tax on behalf of employees.

By planning Christmas gifts within the outlined tax rules, you can spread goodwill without incurring unnecessary tax liabilities.