Some employers may wish to give a small gift to their employees. As long as the employer meets the relevant conditions, no tax charge will arise on the employee.

A tax exemption is available which should help employers ensure that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:

• the cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees)
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice)
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
• where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.

No more than £50

One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. HMRC examples consider various gifts including turkeys, bottles of wine and gift vouchers.

Further details on how the exemption works, including family member situations, are contained in the HMRC manual.

However if you are unsure please do get in touch before assuming the gift you are about to provide is covered by the exemption.

Internet link: HMRC manual

HMRC has confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the tax exemption rules for annual functions.

The Association of Taxation Technicians (ATT) has received the following statement from HMRC:

‘Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties.

‘Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met.

‘It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally. We will be updating our GOV.UK guidance shortly.’

The rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function such as a seasonal party, without creating a tax liability.

To qualify the party must be an annual event which is open to all staff generally, or all staff at a specific location, if the employer has more than one location. If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head must be no more than £150.

Internet link: ATT news

It is time to prepare for the end of the Brexit transitional period.

Whilst the United Kingdom officially left the European Union (EU) on 31 January 2020, this prompted the start of an 11-month transitional period during which time the UK remains part of the Single Market, the EU Customs Union and the VAT Territory. The UK will leave the EU VAT Territory on 31 December 2020. After this date, Great Britain (England, Wales and Scotland) will not be subject to EU VAT legislation. Northern Ireland will remain subject to EU VAT legislation in respect of transactions involving goods, but not for services.

Acquisitions (purchases of goods from EU member states) will be treated as imports. A new system, Postponed Accounting, will be introduced and will apply to imports received from all over the world, with some exceptions such as low-value consignments. The system is intended to mitigate the cashflow disadvantage posed by paying import VAT upfront and waiting to reclaim it in a later VAT return. Under the new system, import VAT can be deferred and declared to HMRC in the VAT return for the period of importation. The VAT can be reclaimed in the same return subject to the normal rules for reclaiming input tax.

Dispatches (zero-rated sales of goods to business customers in EU member states) will be treated as exports. Exports are zero-rated, provided certain conditions are met.

Distance sales (sales of goods to non-business persons in the EU) will also be treated as exports. The EU distance-selling regime and thresholds will no longer apply to UK suppliers.

Customs changes

When the UK leaves the EU Customs Union on 1 January 2021 the UK will operate a full, external border with the EU. New border controls on imports from the EU to Great Britain will be introduced in stages, with customs declarations for goods which are not controlled being delayed until 30 June 2021.

Customs Duty

From 1 January 2021, there will be new rates of Customs Duty for imports – called the UK Global Tariff. To check the tariffs that will apply to different categories of imported goods, please see https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021.

It is important to be ready for these changes. Some practical actions to take now include:

• Obtaining an Economic Operator Registration and Identification (EORI) number, which will be required when trading with the EU post Brexit. It is free to obtain an EORI number and you can do so by visiting https://www.gov.uk/eori.
• Deciding whether to use an agent freight forwarder to help with making customs declarations. The following guidance outlines the services they can provide: https://www.gov.uk/guidance/appoint-someone-to-deal-with-customs-on-your-behalf
• If you buy goods from the EU, checking whether those goods are ‘controlled’. Ascertaining which declarations are required and when they will need to be made. For more information please see https://www.gov.uk/guidance/list-of-goods-imported-into-great-britain-from-the-eu-that-are-controlled.
• Checking the UK Global tariff to see the rate of Customs Duty that is likely to apply to the goods you import.
• Deciding whether to use the Postponed Accounting system (https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return) to defer import VAT and familiarising yourself with the procedure for declaring the deferred import VAT on the VAT return.

If you require more information please contact us to discuss how we can help you move smoothly into 2021.

Internet link: GOV.UK transition campaign

The Association of Taxation Technicians (ATT) has issued a last call for businesses looking to make use of the increased Annual Investment Allowance (AIA).

The AIA will be reduced from £1 million to £200,000 from 1 January 2021. Businesses that incur significant expenditure on plant and machinery before the end of this year are likely to get tax relief on the cost much earlier than if the purchase is made in 2021.

Jeremy Coker, President of the ATT, said:

‘The AIA rules can catch a business unawares.Many businesses will have deferred decisions about purchasing capital equipment this year because of the enormous uncertainties created by the pandemic. For any which are considering such purchases now, the scheduled ending of the temporary increase in the AIA in two months’ time introduces an unwelcome additional complexity.

‘Although the timing of a purchase may make no difference in the long run to the amount of expenditure which qualifies for tax relief, it can make an enormous difference to how quickly that relief is received and the contribution that the relief can make to the cashflow of a business.‘

Internet link: ATT

From 1 January 2021, the UK will operate a full external border with the EU, which will entail major changes for imports and exports to and from the trading bloc. From 1 January 2021, declarations will be needed to import or export specific (limited) goods categorised as ‘controlled’.

However, for non-controlled goods brought from the EU to GB, import controls apply in three stages: January, April and July 2021. Some changes will apply to all goods movements, and will involve customs declarations, customs duties and VAT on imports, and safety and security declarations. ‘Additional requirements’ come in, but only affect certain specific goods movements, such as foodstuffs.

Action points to consider now include:

Economic Operators Registration and Identification (EORI) numbers: from 1 January 2021, an EORI number with the prefix ‘GB’ is needed to move goods between the UK and the EU, unless you only move goods between Northern Ireland and Ireland.

Remember that from January 2021, it will be important to think about both the UK and EU sides of the equation: to comply with EU requirements, you will, for example, need an EU EORI number if your business makes customs declarations or gets a customs decision in the EU.

Using a customs intermediary: given the complexity of UK and EU customs declarations, you may want to engage a customs intermediary to deal on your behalf.

Postponed VAT accounting for goods imported from the EU: from 1 January 2021, import VAT applies to imports from the EU. Using ‘postponed VAT accounting’ from 1 January 2021 lets you account for import VAT on your VAT return, giving the potential to declare and recover import VAT on the same return.

Delaying customs declarations and payment of tariffs: when the UK’s full suite of border controls are in place in July 2021, full customs declarations and payment of customs duties, as set out in the new UK Global Tariff (or as specified in any trade deal with the EU) must take place when goods are imported from the EU. But from 1 January 2021 to 30 June 2021, most traders with a good compliance record can defer declaration and payment for up to six months on imports of standard goods from the EU.

This is only a summary outline of some of the issues involved. Gov.uk provides an online checker tool to use in your own circumstances. Do talk to us where further advice is needed.

Internet links: GOV.UK imports and GOV.UK exports