Providing gifts to staff members

I want to reward my employees for their hard work over the past year . I know if I pay them an end of year bonus I will  need to account for income tax and national insurance through the PAYE scheme but I actually want to purchase my staff presents rather than cash. Do I still need to account for tax and national insurance on this, and is there a possibility that I could settle the liability on their behalf?

1st February 2009

If you purchase gifts for your employees each will receive a P11d benefit in kind based on the value of the assets or goods that you have gifted. The employees will be charged to tax, but not national insurance, on the value of the gifts. The company will have to pay a class 1A National insurance at 12.8% on the market value of the gifts at the end of the tax year.

As only the tax liability is payable by the employee, you can actually make a voluntary agreement with the Inspector of Taxes to meet the tax payable on the benefits in kind that you give to your employees. This is known as a PAYE Settlement Agreement (PSA). Once you have a signed agreement for a tax year, you do not have to enter the items covered on form P9D or P11D, operate PAYE on them, or assess NIC liability for included items which are liable for Class 1 or Class1A NIC.

You will actually pay Class 1B NIC on the items included in any PSAs, and meet the tax liability on the total amount of the gifts to your employees. This will result in your employees paying no tax on the gifts they have received.

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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