If you make a voluntary agreement with the Inspector of Taxes, you can arrange to settle the tax and National Insurance on gifts purchased for your staff on their behalf. Known as a PAYE Settlement Agreement (PSA), this is often a much cheaper and simpler way of giving employees gifts. Once you have a signed agreement in place for a tax year, you do not have to provide details of the gifts, but instead pay Class 1B National Insurance on the value of those gifts and meet the tax liability on the total amount.
Without a PSA, your employees will be taxed on their gifts. Tax will be charged based on the value of the gift as it is classed as a P11D benefit in kind. If you give staff vouchers that can be exchanged for goods or services, you will have to pay both employees' and employers' Class 1 National Insurance (11% and 12.8% respectively) through the monthly payroll. If you provide goods such as a Christmas hamper, you pay Class 1A National Insurance (12.8%) in April next year on the market value of the gifts made.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.