How to treat gift purchased by business and process relating payment

Tanja81

Hi, Hoping for some help with a workplace accounting query I am stuck on, I am currently studying my foundation AAT and handle the bookkeeping for a small business.

Question 1: My employer has bought an item from a charity auction which was then given to a member of staff for a birthday present - I am unsure which account to process this again, could this be classed as Entertainment 100% business or charity or owners drawings?

Question 2: The full payment for this item went out of our business bank account, following this cash was collected towards the gift from colleagues which was then used to top up the petty cash. I need to allocate the payment paid out of the business bank and also top up the petty cash, but am unsure which is the best way to process, (accounting system used is Xero).

Any help would be much appreciated.

Thanks
Tanja

MarieNoelle

How much is the present for? If less than £50 this is covered by the trivial benefit exemption for employees and the whole cost can be claimed by the business.

However it seems that the money for the gift is raised by a staff collection so nothing to do with the business? Please could you clarify?

Tanja81

Thanks for responding, the gift was for £190. £100 contributed by the business owner through the business and the remaining £90 by the staff collection. The £90 collected in cash and was put into the petty cash.

Please let me know if any further clarification is required.

Thanks
Tanja

MarieNoelle

Because the cost is higher than £50 it doesn't fall within the trivial benefits rules.

My interpretation of the employment income manual would be that it is either a deductible cost to the business but a reportable benefit in kind for the employee (cost to the business- £100);
or a non deductible cost for the business and the owner treats the remaining £100 as drawings, with no reportable benefit for the employee.

I'd be happy to hear other comments. Hope this helps.

badhombre

Agree with @MarieNoelle - my employer - when making gifts to employees - pays the E'ees share of the NIC thus net cost of nil to E'ee with E'er carrying the full NIC cost.
In the case referred to above even with minimal tax rates being applied the business would incur a higher direct cost than just "writing off" the tax benefit of expensing this charge.
So poor business owner effectively pays another c £19+ on top of the £100 - gotta love NIC!

MarieNoelle

In this case, and because the owner also relied on a staff collection, I would simply suggest the employer pays the difference personally, in which case he/she can get the £90 back.
Easier to stick to the £50 limit!