Many employers give their employees a gift at Christmas. If you are one of those generous employers have you considered whether there are any tax implications for the employee on the gift you give?
Employers may give their employee a bonus at Christmas. A bonus must be added to their pay for the period and tax and NI deducted as appropriate. Remember that if you want to give your employee a net bonus of say £500, this will cost you significantly more because you will have to pay the tax as well as the employees and employers NI on top. And if your employee has a non standard tax code or even a K code you might be shocked at what it costs you to do this. If you want to pay a bonus it is much better to pay a gross bonus (before deductions) because tax codes do vary from employee to employee.
If you choose to give your employee a gift at Christmas it will not have a tax or NI liability if:
- It costs you less than £50 to provide it
- It isn't cash or a voucher
- It isn't a reward for work or their performance
- It isn't in the terms of their contract
If your gift meets this criteria it is known as a Trivial Benefit.
If you give your employee any gift which doesn't meet these criteria you will need to report it on a P11D. This form calculates the NIC due for both the employee and the employer. The P11D must be submitted after the end of the tax year and before 6th July. The P11D does not calculate tax due on the gift. Instead a new tax code will be provided to the employee so any tax due will be deducted from their normal salary. Alternatively, if you have planned ahead, you can put the gift through the payroll (payrolling benefits) as long as you have advised HMRC that you wish to do this prior to 6 April in the year you payroll the benefit.
An employer may give their employee goods from their business which may or may not be sold for cash. If these goods do not meet the criteria of a Trivial Benefit (given above) their value must be reported on a P11D for each employee and Class 1A National Insurance paid. Further guidance on the value to be reported can be found here.
These rules apply only to those companies who have a payroll and employed staff. If you are self employed and buy a gift for one of your employees there are no reporting requirements or any tax or NI implications.
A director of a "close" company (a limited company with 5 or less shareholders) can receive up to £300 of trivial benefits in a year. HMRC guidance can be found here.