Cash gift from employer?

CoolHandLuke45

My employer, a private limited company, has asked me to wave my contractual bonus. The Director will instead pay me the same sum as a personal gift. My employer has a logical and legitimate reason for this and their accountants have suggested they pay me the sum as a personal gift. From my part I will receive the entire sum and pay no tax or NI so it's good for me.


Are there any issues for me to consider when accepting this personal gift? Since chartered accountants have recommended this method I assume it is completely above board. If the Director dies in the next 7 years I know that the sum will be subject to inheritance tax but apart from that are there any restrictions or conditions surrounding the payment?


Any help or advise on this would be much appreciated.

Mikeyorks

CoolHandLuke45 wrote: »

Are there any issues for me to consider when accepting this personal gift?

I would bear in mind it's 99% certain HMRC will charge you both tax and NI on the sum if they uncover this :-

http://www.hmrc.gov.uk/paye/payroll/special-pay/incentive-awards.htm#2

........ as the Director will find it very difficult to justify the cash gift is unrelated to your employment, if pressed. And HMRC will consider you have colluded.

RayWolfe

Get a letter with it from your employer saying that they will take responsibility for any Tax & NI that may become due. If you get that letter, then it is not you responsibility whatever the outcome. If they won't give you a letter like that, then you may draw your own conclusion about its legitimacy. AND, don't forget, the accountant is working for the company, not for you!

ceeforcat

Different angle maybe to look at -

The Director will instead pay me the same sum as a personal gift.

This suggests that the company is not paying the 'gift' and, accordingly, not claiming relief for the payment. The director, like you, is an employee of the company and is in the same position as you would be if you were to gift him the money.

Whilst I would query the reasoning behind this gift, I would also suggest that there is some difficulty in deducting tax and NIC from it.

olivetti

ceeforcat wrote: »

Different angle maybe to look at -

The Director will instead pay me the same sum as a personal gift.

This suggests that the company is not paying the 'gift' and, accordingly, not claiming relief for the payment. The director, like you, is an employee of the company and is in the same position as you would be if you were to gift him the money.

Whilst I would query the reasoning behind this gift, I would also suggest that there is some difficulty in deducting tax and NIC from it.

The only question that counts will be what reason was the gift given? There have been several tax cases that have addressed this issue and it will need to be some kind of personal reason behind it such as a wedding or retirement. If not and especially if you still work for the employer it wil be considered to be a payment or remuneration for services given under a contract of employment.

I cannot see how this cannot be the case. The chartered accountant should be registering this as an avoidance scheme if it is any way legitimate. Ask your employer if they have done so and ask for the scheme reference number.

I am assuming the director won't actually be using his own money to pay this and will at some point take it out of the company. how will he do this, dividend, salary or some specious 'expense' put through the books?

If it is a close company (controlled by 5 or fewer directors/shareholders) then the distinction between company payments and directors payments are blurred.

If caught you will be liable to the correct tax and NI as well as interest and likely a penalty of up to 100% of the tax and NI due, unless you can prove you knew nothing about it and as you have to waive a contractual right to do this the odds are against you and the company/director.

You can report your employer anonymously:

http://www.hmrc.gov.uk/tax-evasion/index.htm

Edit: this also sounds like it is receiving payment in order to vary the terms of a contract.

When it boils down the gift would need to be proved it was for some kind of personal link and not related to the employment in anyway what so ever.

TM1976

Income from employment is taxable - Gifts are not.

It's difficult to see how this could be considered to be anything other than income from employment whether the paid by the company or a third party. Would the director be making the "gift" if the conditions of the contractual bonus were not met?

bootman

Maybe I should ask if i can be paid in gifts each month.

It's avoidance!

Louisdf

Try living on minimum wage. How greedy are you!

CoolHandLuke45

Thanks for the comments.

I don't have an accounting background so I obviously told the director I would have to seek advice before to agreeing to this sort of arrangement as I don't want to break the law and have HMRC banging on my door. The director approached me about this situation and it is probably best I explain why.

The company is a reasonably small one and owned by 2 directors who have an equal shareholding. I have been working for the company since it's early years and it has grown massively since then and I have played a major part.

The company is being acquired and the acquiring company will pay a mixture of cash and shares to the 2 directors. The cash payment will be worked out as profit over the last 12 months x10. The problem for the director is that my bonus will be taken out of the profit figures and will end up costing the directors a large sum personally (my bonus x10). So by paying me the money personally the director will save a large chunk of money.

The payment will not come from the company in any way. The director will pay me the money from his personal bank account.

RayWolfe

So, he's cheating the acquiring company as well as the rest of us who pay tax!

Mikeyorks

CoolHandLuke45 wrote: »

The payment will not come from the company in any way. The director will pay me the money from his personal bank account.

The payment is as a direct consequence of your employment - as such it is taxable no matter which account it ultimately emerges from. Not only is it evasion ....... but they're fraudulently cooking the books to attain a higher price.

If they're managing your bonus under the counter ...... what else might they be doing under there? Difficult position for you to be in - particularly if they're moving on and you're staying!