Christmas presents for staff

My staff have worked exceptionally hard this year and I would like to give them all a bonus this Christmas.  If I give them a cash bonus, they will have to pay tax and National Insurance on the money, but can I give them vouchers or gifts instead?

1st November 2010

The gifts will be made as a result of the staff's employment with your firm and therefore they will be treated as a benefit in kind (disclosed on year end forms P11D) and tax will be charged on the value of any such gifts. If you give the staff vouchers that can be exchanged for either goods or services, both employers' and employees' National Insurance will be charged on the value of the vouchers and this should be settled through the payroll.  If you provide goods rather than vouchers, Class 1A National Insurance will be due and this will need to be paid in April next year.

If you want to avoid the employees having a tax liability on any gifts, you could enter into a voluntary agreement with the Inspector of Taxes so that you settle the tax and National Insurance due on the gifts on behalf of the employees.  Such an arrangement is known as a PAYE Settlement Agreement (PSA) and once it has been agreed with the Inspector, you do not have to provide details of the gifts, but instead pay Class 1B National Insurance on the value of the gifts and meet the tax liability on the total amount.

If you wish to reward your employees in a tax efficient manner, there are other options available to you, such as making an employer contribution to an employee's pension plan - such payments are deductible for the employer and do not constitute a taxable benefit for the employee.  To discuss this and other tax efficient payments for employees, please speak to your local TaxAssist Accountant.

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.

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