When is a gift not a gift? :)

Raging Pineapples

Hi all,

I'm starting up as a bookkeeper, and would appreciate a little advice on the treatment of gifts received by small sole traders from their clients.

To illustrate, my wife is a domestic cleaner, and she receives various cash gifts from her clients around the winter holidays, just before we go on vacation, or occasionally just as a little 'thank you'. We've always chosen the safest bet and simply declared it all as if it were income. However now that I'm going to be helping other sole traders with their books, I feel I need to have a firmer grasp of the principles which would apply.

This is the thought process I've gone through in relation to the gifts my wife receives:
Reasons it may not be taxable
The moneys are not 'earned' in the sense of her performing a tangible work to gain them. This is distinct from her normal earnings, where a direct correlation is seen between the hours she works and the income generated.
Reasons it may be taxable
Friends with whom a business relationship does not exist do not tend to offer cash gifts before we go on holiday. If the clients were her neighbours and not her clients, I doubt she would receive any such gifts, suggesting that the receipt is still part of the business relationship that they have. Additionally, if she were to cease working for that client, she would not continue to receive any gifts from them.

The last point seems to be a clincher for me, but I'd really appreciate any guidance you could offer, especially if it were supported by something that HMRC has published on the matter. I've searched and searched, but I've only found isolated opinions by practitioners rather than anything published by HMRC.

uknitty

I'm pretty sure it is taxable.

This link from HMRC talks about Christmas "presents" being paid in cash, but I would imagine that it would cover the circumstances that you are describing.

qwerty

The income may not be taxable (it depends on the facts of the case).

The link provided in the earlier post relates to employment income (although it would be nice to have "voluntary" cash receipts be non-taxable for employment, but you could just imagine every client saying - "I only pay me staff a basic salary, but to reward them for their hard work I voluntarily pay them a nice cash Christmas bonus") :laugh:

For self employment see:

http://www.hmrc.gov.uk/manuals/bimmanual/bim80110.htm

Generally, if the receipt was voluntary, unexpected and without obligation or as a reward for services provided, it is not taxable.