It is that time of year when we may want to reward employees as a thank you for all their hard work and achievements and as an employer if you provide a “Christmas Bonus” there are certain Tax and National Insurance reporting obligations you need to be aware of.
This depends on:
- whether you give employees cash bonuses or goods (gifts)
- and if you give goods to an employee, whether or not they can be resold for cash
Cash bonus
Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to add the value of the cash bonus to your employee’s other earnings and then deduct PAYE Tax & Class 1 National Insurance through your payroll.
Goods
If you give goods to your employees as “Christmas gifts”, and they can’t be counted as what HMRC would define as “trivial benefits”, you would need to report them on form P11d & Pay Class 1A National insurance on the value of the benefit given.
Trivial Benefits
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
You have to pay tax on benefits that don’t meet this criteria. If you are not sure if a benefit is counted as ‘trivial’ you can check by contacting the HMRC employer helpline.
If your benefit is not classed as ‘trivial’ the amount you need to report to HMRC depends on what has been given to the employee and the ‘value’ would need to be reported as follows:
- Cash Bonuses – the amount you pay to the employee
- Goods with no resale value – the amount the goods cost you
- Goods with cash resale value – whichever is the higher of – the resale value or the amount the goods cost you.
You also need to be aware of the rules and regulations around entertaining employees at Christmas. The annual party can attract tax relief as a deductible expense and if you are VAT registered the VAT on staff entertaining can be reclaimed.
However, to avoid potential tax implications for employees the party should be:
- Open to all employees
- Annual
- Cost £150 or less per person
Please get in touch with us if you wish to discuss your Christmas plans.
