With Christmas approaching employers are giving consideration to offering Christmas gifts to their employees. Showing your appreciation of your staff’s efforts by gifts and benefits is good for morale. However, do not leave a sting in the tail by also giving them a tax liability.
The most common gifts and benefits are cash, retail vouchers, food items and the Christmas Party. Each item has very different tax implications:
This is where you provide an employee with a cash sum as a Christmas Bonus. It does not matter if you hand the employee cash in an envelope or pay it via your payroll. PAYE and NIC must be deducted on these payments and shown additionally to the employee’s normal earnings.
Retail vouchers are considered as ‘non-cash vouchers’ as they can be exchanged for goods and services but not cash. There is no tax deduction on retail vouchers via your payroll as instead they are taxed as a benefit in kind reported on form P11D. There is a NIC liability for both the employee and employer. The value of the voucher (cost to employer) must be recorded on the employee’s payslip and NIC paid on that value. If the face value of the voucher is £50 or less, HMRC considers this a trivial benefit – see ‘Gifts’ below.
If you choose to give your employees an ordinary bottle of wine or a box of chocolates, then HMRC consider these as trivial benefits. This means no PAYE or NIC are due and neither do they need to be reported on a P11d. A benefit is considered to be trivial if it costs you £50 or less to provide.
You can entertain your staff without causing them a tax liability, but you can only spend up to £150 inclusive of VAT per head (including taxis home and overnight accommodation) without any tax implications. This limit will include the Christmas party, the summer barbeque and other similar functions. Once you spend over £150 per head per annum, the whole amount becomes taxable, not just the amount over £150, so be careful. The £150 limit also applies to guests attending.
PAYE Settlement Agreement
If your Christmas gift to employees will result in them incurring a personal tax liability, you may want to explore obtaining a PAYE settlement agreement with HMRC. This means the company pays the PAYE and NIC liability rather than the employee. Staff will appreciate receiving a gift, but will not appreciate the tax bill. Gifts that are regarded as trivial benefits should not be included in a PSA, however if a benefit cannot be considered to be trivial it may be considered to be minor and suitable for a PSA.
VAT and Corporation Tax
Please remember there are also VAT and corporation tax implications for these gifts and benefits.
If you are thinking of making Christmas gifts to your employees, please feel free to discuss the tax implications with us before giving them. Give one of our tax teams a call on either Rugby 01788 539000 or Leicester 0116 261 0061.