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MPs are currently at the centre of media attention over gifts they have received. Aside from the moral rights and wrongs, are the gifts taxable and, if not, as a director or employee, can you also escape tax on gifts you receive?

MPs a special case?

The furore around gifts received by MPs seems set to rumble on despite the government’s intention to introduce a new code of practice for ministers (but not MPs generally). Despite what you might have read or heard, there are no special exemptions or tax breaks for MPs that mean gifts or hospitality they receive are outside the scope of income tax.

Exemptions

The general rule is that employment-related non-cash gifts are taxable as benefits in kind unless an exemption applies. There are various exemptions for employment-related gifts (benefits in kind), such as trivial benefits (those which cost no more than £50), a mobile phone, and many more. In addition, there are general exemptions that can apply to gifts (benefits in kind) from third parties.

Trap. Where an employer directly or indirectly pays for a benefit, it counts as provided by the employer even if another person, e.g. business, company or other organisation, provides it. Such benefits aren’t third party benefits and so the following exemptions cannot apply.

Exempt third party benefits

Gifts of goods. Goodwill gifts, e.g. a few bottles of wine from a customer, won’t be taxable as a benefit in kind where:

  • the cost to the third party of all gifts to the employee from the same person is less than £250 in a tax year
  • the gift is not cash, a retail voucher does not count as cash
  • the third party isn’t connected to the employer, or someone connected with the employer, e.g. the business owner’s spouse
  • the gift is unsolicited and not in return for specific past or future services of the employee.

Free entertainment. Where a third party provides entertainment or other hospitality, e.g. tickets to a concert, it isn’t a taxable benefit if:

  • it wasn’t procured by the employer or anyone connected with the employer
  • whoever provides the entertainment, e.g. the performer of the concert for which free tickets have been provided, isn’t connected with the employer
  • it’s not provided in return for specific past or future services of the employee.

By reason of employment

The exemptions wouldn’t apply to the majority of the gifts to MPs at the centre of the current rumpus. You might therefore ask why aren’t MPs taxed on the perks they receive. The answer lies in the tax principle that gifts are only taxable if they are made “by reason of employment”. The courts have ruled this to mean that a benefit is taxable if a person’s job enables them to obtain the benefit. HMRC seems to have taken the view that being an MP is not what “enables” the gifts and so they are outside the scope of income tax. We agree with this in some situations but in our and other tax experts’ opinions, not all. We think HMRC should review its approach to MPs’ gifts with a view to taxing them where appropriate.

Currently MPs escape income tax on gifts because HMRC’s view is that they aren’t provided “by reason of employment”. This rule can also apply to gifts you receive, and where it doesn’t there are various specific and general tax exemptions, e.g. for entertainment and hospitality provided by persons other than your employer.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.

18th Oct 2024 14:54

Gifts Tax

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