It’s been a hard year in general practice and most partners will be thinking of the best way to thank staff for their efforts over the past 12 months. But unless GPs take care, they may find themselves making a seasonal gift to the taxman too.
HMRC allows practices to spend up to £150 per head on staff entertaining in a year, and accepts it as a tax-deductible expense with no benefit in kind applying on the staff member. It doesn’t matter whether the money is spent on a party in the surgery, a dinner dance at a hotel or supper at a partner’s home – the important part is that the event is open to all staff, not just a select few. The per- head limit applies to all those attending, not just staff, so if they bring someone it becomes £300 per couple. This needs to cover all costs, including coaches, taxis, accommodation, raffle prizes and so on, but from a tax efficiency perspective, a good party or night out is a great idea.
Giving gifts may feel like a more personal way to reward your staff. HMRC will usually disregard seasonal presents such as an ordinary bottle of wine or a turkey if the value is less than £50 or so, but any more than that and things can get complicated. The practice either has to deal with benefits in kind, or set up a PAYE settlement agreement. This simplifies matters but the value of the gift is grossed up, meaning the practice pays tax and national insurance on the gift – which may cost nearly as much as the gift itself.
Gifts in cash will always be taxable, so if you want to give an employee £50 in cash this will need to be grossed up through the payroll. How much this will cost depends on the employee’s income.
Vouchers might seem an easier option, but HMRC treats them as cash and they have to go through the payroll or a PAYE settlement agreement in the same way.
The natural instinct may be to try to find a way round the system. For example, partners might consider taking extra drawings and then offering personal gifts to staff. However, as well as being illegal, this would mean partners wouldn’t get tax or superannuation relief on their cash gifts, so would end up slightly worse off than if they put gifts through the payroll.
Bob Senior is chair of the Association of Independent Specialist Medical Accountants (AISMA) and head of medical services at Baker Tilly