Tax liability on my company competition prize?

Legacy_user

I have just won one of ten holidays (yippee!!) through an internal (worldwide) company competition. It was a prize draw based on submitting a correct entry to a number of questions.

As this competition was only for employees (however, it was not a reward for sales volumes etc), does anyone think there might be any tax implications?

I don't intend to sell the prize or anything like that?

Please advise as I would like to quieten the person trying to take the shine off my win!

Bean_Counter

Hi,

Firstly congratulations on the prize win.

I'm afraid your colleague might be right in that there could be tax implications.

I was on an HMRC benefits course recently when this scenario was covered. You have received the prize by reason of being an employee and hence the value of the prize is a taxable benefit. It is worth noting that even if the prize is provided by a third party (e.g. a car salesperson receiving a sales award from the manufacturer rather than the employer), it is still a benefit to you by reason of your employment.

As you seem to work for a large organisation, I presume that they have an HR department. My advice would be to go to them and ask whether the prize is covered by their PAYE Settlement Agreement, where the employer picks up the tax liability. If not ask whether they are going to put the value of the prize on your next P11D. If they are, then demand compensation up to the value of the tax liability.

Let me know if you want further information.

System

Thanks for your reply Beancounter - very much appreciated, if not quite what I wanted to hear!

The prize is being supplied centrally by our Spanish owners not our UK division - will that make a difference to the tax position?

Also, knowing how things work here, I very much doubt that someone in Spain will contact our Payroll in order to advise them of the prize. As such whose responsibility is it to make them aware, why should I pay tax on a prize that was won fairly and squarely? Haven't HRMC got bigger fish to fry and how would they ever know?

Regarding a PAYE settlement agreement, is that an extra cost to the employer or does it balance out somewhere else on the books? I am pretty sure we don't have one - I might suggest we do though!

RayWolfe

Any self-respecting company pays the tax for you. If you're with a large organisation, check the payroll department.

Mikeyorks

balfralf wrote: »

does anyone think there might be any tax implications?

Very much afraid that HMRC will think that. If the competition wasn't open to the public ..... then the view will be that it is taxable (as the heading here) :

http://www.hmrc.gov.uk/employers/ebik/ebik2/prize-money.htm

..... as it's not in 'cash' then it won't be immediately subject to PAYE & NICs. But it is 'money's worth' in HMRC parlance (see the EIM links on the foot of the page referred to above) ..... so will be a benefit in kind.

A) why should I pay tax on a prize that was won fairly and squarely? Haven't HRMC got bigger fish to fry and how would they ever know?

A) Because it's directly consequential to your employment. Because your company will claim the cost of these prizes against profit - and show them in the accounts. And because they positively don't want the PAYE auditors in.

They should, as previous, offer to offset the tax cost. But there should be a cost.

System

Thanks again for all the advice - I will make sure that I clear up the PAYE aspect of the prize once I find out more.

As regards the HMRC justification for charging tax mention by MikeYorks, the prize will be paid from a central budget in Spain, I doubt it will show on the UK books, hence the HMRC are not losing out from that point of view.

If I was liable for any tax and the value of the holiday was £5000 (fingers crossed), what implication might that have on me?

Would it be 20% or 40% of £5000 added to my P11D? Hence there might be an extra bill for £1k or £2k for the 08-09 tax year?

Bean_Counter

balfralf wrote: »

Would it be 20% or 40% of £5000 added to my P11D? Hence there might be an extra bill for £1k or £2k for the 08-09 tax year?

It depends what your marginal rate of tax is at the moment.

However as Ray said any self-respecting company would pay this for you. I would be very disappointed to put it mildly if I was stiffed for tax in this way.

System

I have managed to contact somebody in HR who is administering the prize etc.

They confirmed that the tax liability will be picked up by them.

Thanks for all your advice, but now I can relax and enjoy my prize when I actually find out more.

Mikeyorks

Excellent. Enjoy the (tax free ) holiday.