Staff – giving Christmas gifts and bonuses

It’s the time of year when employers think about rewarding their staff for all their hard work over the year. But there are some pitfalls to watch out for but some really good tax breaks too so it’s worth being careful.

Any Christmas bonuses / gifts paid in cash to employees, by employers, are almost invariably taxable as earnings. This view has been upheld by the courts over and over again so it is worth thinking of an alternative to cash otherwise what you are giving won’t be quite what the staff member receives due to tax and national insurance.

So, if you are an employer and looking to give a Christmas bonus to your employees, then your best option is probably to give them a gift but even then you have to consider the value of that gift or it will be taxable as a Benefit in Kind (BiK),

To make sure that you avoid this you need to stick to these rules which are called the “Trivial Benefit” rules.

The gift:

• is not cash or a cash-voucher; and
• costs £50 or less; and
• is not provided as part of a salary sacrifice or other contractual arrangement; and
• is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

For example, a turkey that cost £45 would qualify as would a £15 bottle of wine, a hamper, a CD, a bunch of flowers, in fact anything that isn’t cash. It is very important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is an annual cap of £300 for directors or other office-holders of close companies and to members of their families or households. The £300 cap does not apply to normal employees. This means also that if you are a Director and don’t have and staff then you can treat yourself with gifts up to a value of £50 each and a cap of £300. If you are a husband and wife Company with both as Directors you get twice the allowance so why not fill the cellar with wine this Christmas* ? *Please drink responsibly !

If you stick to these rules then there is not any requirement for employers to report these benefits on P11Ds or PAYE Settlement Agreements.

However, if the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit, then the gift must be reported on form P11D and employer Class 1A NICs will be payable.

Happy trivial benefit shopping !