Whilst Christmas is the season of goodwill to all, employers providing their employees with a seasonal ‘thank you’ need to pay attention to HMRC rules, otherwise they could find that they incur hefty bills.
Robert Salter said: “it is easy for employers to inadvertently break the rules and create unforeseen tax and NIC liabilities. A real life bah humbug to Christmas and the season of goodwill to all!”
He added: “for example, cash bonuses and gift vouchers can be treated as ‘regular salary’ and subject to PAYE and NIC.
“Even cash gifts from 3rd parties to your employees can be regarded as ‘earnings’ for tax and NIC purposes and may need to be reported on the payroll, though this will depend upon the precise ‘nature’ of the payment. For example, a payment which is a genuine present like a bottle of wine or a hamper should not be taxable.”
Robert said “the rules for employee gifts can differ. For example, small gifts with a value of under £50 per employee can usually be made to employees on a tax-free basis under the ‘trivial benefits’ rules – e.g. this could be a Christmas hamper or a bottle of wine. However, gifts which are more substantive in nature like a piece of jewellery or a free holiday can create both a tax and NIC liability.”
He added: “providing a Christmas party for employees can also trigger tax and NIC liabilities for employers as tax liabilities can add up over the year. If an employer has provided a summer drinks party and then a Christmas party and cost per head for both is more than £150.00 then the employer is liable to extra PAYE and NIC charges.”
He added: “the problem is that many employers who want to do the right thing for their employees just don’t realise how things can add up. They need to be extremely careful.
“Companies usually cover the tax costs associated with these Christmas gifts as a goodwill gesture. However, they may not realise that the overall tax costs can add, in many cases, a further 90% or more to the initial cost of the event or gift under HMRC rules because of the tax on tax charge that arises in such cases.”
Robert said: “whilst most of the responsibility for getting this right so that there are no extra tax liabilities is down to the employer, it makes sense for employees the check their P11D liabilities with the person they work for.”