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Giving employees a gift or bonus at Christmas

Thinking of rewarding your employees’ hard work with a gift or a Christmas bonus? Then read on. Just because it’s Christmas doesn’t mean the tax rules disappear.

The rules around rewarding staff at Christmas are confusing and can turn a generous gesture into a bit of a headache if you’re not careful.

A gift of money is treated as regular earnings, so a bonus will go through your payroll with PAYE and National Insurance deducted. Give your payroll account manager plenty of notice so that the extra payment can be set up on the payroll software in plenty of time to hit the Christmas pay packet.

If you give a gift instead of a bonus it may count as a ‘trivial’ benefit and won’t need to be reported. Chocolates, ordinary wine, flowers – in fact any small gift can be classed as trivial. A gift is more likely to be considered trivial if it’s to do with your employees’ welfare ie a gift to celebrate a birthday. If in doubt, check with the HMRC employer helpline 0300 200 3200. Any gift worth £50 or less will be exempt.

But if the gift is of value, a piece of jewellery, for example, it will count as a benefit in kind and will need to be reported to HMRC.

Reporting benefits to HMRC

Any benefits you pay to your employees will need to reported using P11D in July. Your payroll account manager can do this for you. Or you can opt to payroll some benefits. This allows you to payroll tax on benefits and expenses without having to submit a form P11D after the end of the tax year. You need to register before the start of the tax year.

If you have any concerns about Christmas bonuses and benefits, speak to your payroll account manager.

Expenses and benefits for employers

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