Its that time of year when we may be thinking about how to reward our employees for their support during the year. A Christmas meal, a bonus, a bottle of wine or some chocolates?
Whatever gift you decide on you should be aware of the tax and National Insurance implications of what you give them.
You should also know that no entertaining or gift expense is allowable if it is purely for the directors, partners or business owners. Entertaining and gifts are to reward employees.
If you plan on giving a bonus this Christmas it must go through the payroll just like any other bonus or extra pay you give. It is a taxable benefit and must have National Insurance Contributions deducted. Pension contributions may also be deducted depending on whether your scheme has been set up to have contributions taken from all earnings.
If you decide to give your employees a gift this is not taxable as long as it costs less than £50. This is considered a trivial gift by HMRC but it must not be cash or a cash voucher and it must not be in the terms of their contract that they will receive a gift at Christmas. If you plan to give your employees a gift which would not be considered trivial this must be reported on a P11d and Class 1A National Insurance contributions paid on the value of the benefit.
If you do decide to give your employees a Christmas gift which is not considered trivial by HMRC you can choose to have a PAYE Settlement Agreement with HMRC where you make an annual payment to cover the tax and NI implications of larger gifts so that the employee themselves does not have to pay the tax and NI on the benefit themselves.
If you decide to treat your employees to a meal or a Christmas party it is not taxable as long as you do not spend more than £150 per person in one year. If you have had a summer event as well the per head cost of that must be taken into account as £150 per head is the maximum amount you can claim against tax on social events in a year. If your second event takes you over the £150 per head limit you will not be able to claim any of the cost of the second event. The social event must be open to all staff for the expense to be allowable and not just to Directors, Partners or Managers.
You are able to claim the VAT on the cost of your Christmas party or Christmas meal but if you also pay for the guest of any employee you would not be able to claim the VAT on the guest portion of the cost. If your Christmas meal is only open to partners or directors you cannot claim back any VAT. VAT can also be claimed on trivial gifts up to £50.
If anyone attends your Christmas meal or Christmas party who is not an employee of your business the cost of that social entertainment for that person is not an allowable business expense and cannot have VAT claimed on the expense either.
If you provide a Christmas gift to your customers its value must be less than £50 and it must advertise your business. It must not be food, drink or tobacco unless that is your business.
I hope this helps you to decide what you give your employees this Christmas.