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, but also be clear whether the cash bonus figure you are giving is gross (before deductions) or net (after deductions).
If you give a gift instead of a cash bonus it may count as a ‘trivial’ benefit and won’t need to be reported to HMRC. 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 i.e. a gift to celebrate a birthday or a special occasion.
You don’t have to pay tax on a benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
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.
If in doubt, check with the HMRC employer helpline 0300 200 3200.
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 for payrolling benefits with HMRC before the start of the tax year in which you are to begin.
If you have any concerns about Christmas bonuses and benefits, speak to your payroll account manager.