Replies to Queries - 4 - Turkey business

We have an engineering company client under investigation by the Inland Revenue which is now nearing its end. There is an annual company Christmas party and, around that time, turkeys are given to each employee. One of the directors of the company suggested to the Revenue that the supply of turkeys fell under Extra-statutory Concession A70B but the Revenue is firmly contending that the cost to the employer of supplying the turkeys is assessable on each recipient employee. All employees earn over £8,500 per year and it looks as if we must accept the Revenue point of view.

It is fairly widespread practice among engineering businesses to give away turkeys at Christmas. We would therefore be interested to learn if any practitioners have successfully argued that the provision of these gifts is to be regarded as a tax-free benefit.

(Query T15,975) - GEG.

Christmas turkeys feature in many industries but, where the employer sees a molehill, the Inland Revenue sees a mountain.

Many years ago, when the rate of £8,500 related to higher paid employees, I was involved in a discussion with a Schedule E compliance officer on this very question. Many of the employees were not 'higher paid' and could only be taxed on the money's worth principle and we ended up discussing the secondhand value of a turkey.

Moving on a few years, in the days before pay-as-you-earn settlement agreements (PSAs), I dealt with a large plc. It had more than one payroll. Two districts had been approached independently about the Christmas turkeys and had said that they would not try to assess the benefits on all employees. The client decided that, since two payrolls had been told that the Inland Revenue did not want forms P11Ds for the gifts, that was the Inland Revenue's attitude in general. However, the pay-as-you-earn enquiry settlement included an amount for the Christmas gifts at three branches but not at two others. The pay-as-you-earn auditor argued that there really was a benefit but that she would not collect tax where the Inspector had said that it did not want forms P11D. I suspect that, nowadays, the Inland Revenue would insist on a pay-as-you-earn settlement agreement rather than not bothering to collect the tax through the coding notice.

Extra-statutory Concession A70 would only apply where the turkey was given as a present at a staff Christmas party. If the gift forms part of the cost of £75, it will be exempt from tax. If the gift is not part of the party, it will not fall within the concession. - White Rose.

Extra-statutory Concession A70 applies to a party, for example at Christmas, open to staff in general, costing up to £75 per head. It does not state that it applies also to exempt gifts to staff at Christmas. In arriving at the cost of the party, all related costs (including the VAT) such as meals, room hire, transport, and band need to be added together. It must be remembered that this is simply a concession and that in its absence all staff parties would be taxable. For this reason, 'GEG's' attempt to extend the boundaries of the exemption is likely to be resisted. In particular there seems to be no link between the gift of the turkeys and the Christmas party. If the turkeys were given away at the party, it could perhaps then have been argued that this was simply a feature and cost of the Christmas party.

Some years ago we did successfully obtain the agreement of the Inspector of Taxes that a manufacturing company could, by concession, give turkeys to its staff tax free. The particular circumstances were, however, that the company was not performing well and, in an attempt to cut costs whilst still giving some reward to its staff, it planned to give each member of staff a turkey instead of the normal Christmas party. The Inspector was also approached just a few days before Christmas and was perhaps feeling in a festive mood! - Wentworth.

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