....with a bonus
In November and December our payroll team frequently receive notifications from employers to add a "Christmas bonus" to their employee's pay. Its a generous way of rewarding employees for their loyalty and commitment throughout the year and gives them a little extra to spend for Christmas. But we do groan when some of those employers want to add the bonus to the the employees' take home pay because we know they don't realise the cost implications.
Increasing take home pay means the employer will also have to pay the tax due, the employer's and employee's NI and the employer's and employee's pension contribution as the gross pay has to be increased to a level before these deductions to achieve the net pay required. The extra cost will vary between employees depending on their tax code and whether they contribute to a pension scheme.
So whilst a bonus at Christmas is generally welcomed by employees, employers should make it an addition before deductions. Employers will still have to pay employers NI and employers pension contributions on it but that will be a lot less than covering all the deductions.
.... with a gift
Some employers like to give a gift at Christmas but, of course, HMRC do set a limit for the value of a gift. Employers are allowed to give employees a "trivial benefit" and the maximum spend per employee must be less than £50 including delivery. This value hasn't changed for many years and with significant delivery costs these days it does reduce the amount that can be spent. However £50 for the employees in your workplace can provide them with a very nice gift and is allowable as a tax deductible expense in the accounts. And as long as you have a VAT receipt you can reclaim the VAT.
.... with a party or meal out
Another option is a Christmas meal or party for employees. This is also tax deductible up to £150 per head for each employee attending and is not reportable as a benefit. It must be open to all employees to attend. VAT can also be deducted as long as a VAT receipt is provided.
The allowance of £150 including VAT per head applies annually and not per event and only applies to employees and not guests attending. The total cost includes any transport, accommodation, food, drink and entertainment associated with each event.
However you decide to treat your employees this Christmas be aware of the overall cost to your business, what is tax deductible and what is classed as a benefit and needs to be reported to HMRC on a P11d at year end.