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Voluntary Receipts: When Is a gift really a gift?

Or would it be taxable?

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Posted by Roger Eddowes on 01/02/2021 @ 8:00AM

For self-employed individuals who offer a great service to their customers and clients, sometimes a gift is offered as a thank you for all their hard work. But should they put it through the business?

Do you add your gift as a voluntary receipt or keep it seperate from the business?

Do you add your gift as a voluntary receipt or keep it seperate from the business?

copyright: weyo / 123rf

There was a recent example of a cleaner who became friends with an elderly couple. At the end of the husband's life, he wanted to give the cleaner a gift as a thank you for all the support they had offered.

"So, would the gift to the cleaner be taxable?"

In this case, they would have to decide if this was a receipt from their trade or a private gift between friends. HMRC offers advice on the principle of 'voluntary receipts' stating that the self-employed receiver of the gift must decide if it is a receipt from their trade. If it is, then is it revenue or capital?

The other side of the coin states that it could be a gift between personal friends and not linked to the self-employed individual's services to the couple that we're offering the gift. Now, that the husband has died and the wife no longer needs the services of the cleaner, it could be seen as consolation for losing the original cleaning role.

If it was decided that it was purely a gift, then no tax is due. However, HMRC has published a list of factors that could be used to make that determination:

  • It is very clear the recipient has no legal right to the payment or to anything that it was intended to replace.

  • The payment would not be an extra payment for previous services, even if it was made to recognise past services or as a consolation for termination.

  • It was made after the business relationship was over with no future likelihood of it resuming.

  • It was unexpected, not sought, and there was no suggestion of compensation on termination of the business relationship.

In the case of the cleaner mentioned above, it seems they met all of the above criteria; therefore, it would be considered as a gift.

It is worth noting that HMRC would look at this situation on a case by case basis, so it is always a great idea to speak to your accountant and get some professional advice.

In a worst-case scenario, this would have to be included on the self-employed individual's profit and loss and treated as a taxable trading receipt.

Until next time ...

Business Godparent


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About Roger Eddowes ...


Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.