With Christmas just a few weeks away you should consider whether any gifts from your company to its employees need to be put through the December payroll. The most common gifts are cash, retail vouchers or food items, e.g. a box of chocolates or bottle of wine. The problem is that the tax implication of each is very different.
Cash Bonus:
This is where you provide an employee with a cash sum as a Christmas bonus. It doesn’t make any difference whether the cash is given in an envelope or paid to them on top of their normal salary, the tax consequences are the same.
Payroll:
The cash bonus counts as an employee’s earnings so you do need to include it on the payroll in the same way that you do their salary. Rather than just add it to their salary, show it as a separate line on the payslip. Ensure that the payroll software deducts PAYE and NI from the gross bonus.
Retail Vouchers:
High street gift vouchers have grown in popularity as a gift for employees. This is thought to be because cash gets swallowed up by personal bills, whereas a voucher generally represents a treat.
In accordance with s.84 of the Income Tax (Earnings and Pensions) Act 2003, retail vouchers are considered “non-cash vouchers” as they can be exchanged for goods and services but not cash. This is the one that often catches payroll clerks out as the NI treatment for non-cash vouchers is actually different from the tax treatment.
Payroll:
You need to add the cost to the company of providing the vouchers (which may be less than the face value of the vouchers) to the employee’s earnings in the payroll. However, you need to ensure that the payroll software is set up so that only NI (and not PAYE) is deducted from the cost of the vouchers.
P11D:
Although the vouchers are not taxable through the payroll, they are still taxable eventually and so need to be shown on Section C of Form P11D (or Section B of Form P9D for employees earning less than £8,500 pa).
Trivial Seasonal Gifts:
If your company gives employees an ordinary bottle of wine (or two) or a box of chocolates at Christmas then HMRC will treat these as trivial benefits. This means that there is no tax or NI due on them and you don’t need to include them on payslips or P11Ds.
If you are considering making larger gifts, such as a Christmas hamper, to maintain staff goodwill you can include the cost of those gifts in a PAYE settlement agreement (PSA) with the tax office. The PSA allows the company to pay the tax and NI due on behalf of its employees.
Article from Payroll Professional Issue 1 – 9 November 2015.
