If you’d like to celebrate the festive season in the form of a juicy bonus or thoughtful gift for your employees: be careful!
Bonuses and gifts are a great way to say ‘thank you’ to your employees at Christmas, but unfortunately, they can come with all sorts of payroll implications…
What does this mean for payroll?
Depending on the type of bonus your business chooses, you may have to report it to HMRC and deduct tax and pay National Insurance.
Cash & Vouchers – If you choose to give cash or a cheque to your employees this Christmas; it counts as earnings. This includes vouchers if there’s a wide choice of spending options. E.g. a £10 voucher that can be spent at any shop counts as earnings.
- For cash bonuses (and vouchers like the example above), you’ll need to: Add the value of the cash to the employees’ other earnings. Deduct and pay Pay As You Earn (PAYE) tax and Class 1 National Insurance through payroll.
- For reporting, you’ll need to report the bonus amount paid to the employees.
Bonuses and gifts
- Physical goods – If you choose to give your staff physical goods and they don’t tick the ‘trivial benefit’ boxes, you must:
Report the goods on form P11DPay Class 1A National Insurance on the value of the goods.*
*For goods with no resale value – use the amount the goods cost you. For goods with cash resale value – use whichever is the higher of the resale value OR the amount the goods cost you.
If you spend less than £50 per person, you’ll have no extra costs or reporting. Make sure you list the event as a ‘festive celebration’ not a ‘reward’ so that staff don’t pay tax and you won’t pay National Insurance.
You won’t have to pay tax on a benefit for an employee if all of the following apply:
- It cost the business £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for work or performance
- It isn’t in the terms of their contract
These are known as ‘trivial benefits’.