Many employers give their employees a gift at Christmas, but have you considered whether there are any tax implications – and therefore payroll considerations – for the employee as a result of a Christmas gift. Here we look at forms of Christmas Gifts.
The Christmas Bonus
A Christmas bonus must be added to the recipient’s pay for the payroll period it is paid in and tax and NI deducted as appropriate. Remember that if you want to give your employee a net bonus of say £500, after PAYE has been deducted, it will cost you the employer more than this as you will have to pay the employee’s and employer’s NI as well.
It’s worth remembering that if the employee has a non-standard tax code, or a K code you might be shocked at the cost of paying a net bonus. Our advice is to pay a gross bonus.
If you choose to give your employee a gift at Christmas, then it will not have a tax or NI liability if:
- It costs you less than £50
- It isn’t cash or a voucher
- It isn’t a reward for quality of performance
- It isn’t in the terms of their contract
If your Christmas gift meets these criteria it is called a Trivial Benefit. But what if the gift does not meet these criteria? The answer is it must be recorded on a P11D form or you can put the gift through the payroll, providing you have advised HMRC prior to 6 April in the year you pay the benefit through the payroll.
Goods from the Business
An employer may give their employee goods from their business as a Christmas gift. However, if these goods do not meet the criteria of a Trivial Benefit, as detailed above, their value
What if you are Self Employed?
The above rules only apply to companies who employ staff and have a payroll. If you are self-employed and buy a gift for one of your employees there are no reporting requirements or any tax or NI implications.
A director of a limited company with 5 or less shareholders can receive up to £300 of trivial benefits in a year.
Talk to us for help and advice on the payroll implications of Christmas gifts and all things payroll.