There are various tax implications to consider on gifts and parties that you may be providing to your employees at this time of year. The points detailed below are a general overview and cover the most common situations that arise.
Cash gifts or bonuses - These are treated as normal pay and subject to PAYE and Class 1 National Insurance contributions (NIC) in the normal way. The payment should be put through the payroll. This also applies to any vouchers you give that can be exchanged for cash (see below for PSA arrangements for small cash gifts).
Gifts to employees - Gifts that can be considered trivial benefits such as a turkey, ordinary bottle of wine or box of chocolates will not need to be declared on form P11d. There is no set monetary limit below which benefits are deemed to be trivial but common sense and judgement needs to be applied in assessing these items. For the purposes of gifts then probably any amount less than £20 per employee would be considered trivial.
Any gifts of a higher value (and classed as non trivial) such as cases of wine/hampers would be subject to tax and NIC and declarable either as a benefit on form P11d or the tax/NIC could be paid on these gifts by arranging a PAYE settlement agreement (PSA).
If declared on P9d or P11d (directors and employees earning over £8,500 pa) forms then non trivial gifts are subject to tax (for the employee) and Class 1a NIC is payable by the employer on items declared on the P11d.
A PSA is voluntary arrangement that on the part of the employer made with HMRC to account for tax/NIC for minor, irregular or impractical items subject to tax/NIC.
If a PSA is arranged then the employer effectively pays the tax due and relieves the employee of any tax liability on the gift. Although there is the extra cost of the tax/NIC a PSA cuts down on the paperwork and record keeping.
Money’s worth benefits such as Store gift vouchers (exchangeable for goods) cannot be treated as trivial benefits. For practical purposes small cash and money’s worth benefits can be included in a PSA. If not dealt with on PSA then Store gift vouchers should be declared on form P9d or form P11d (if employee earns over £8,500) to account for tax. For NICs the cost of providing the vouchers should go through the payroll at the time given to employee.
Christmas parties (and summer events) - Tax and NICs are not due on any annual function if the cost to you is less than £150 per head (including employees partners). The cost per head is the total cost of putting on the function – accommodation, food, drink etc divided by the total number of guests including the non-employees.
If the cost per head is greater than £150 then the whole amount would be subject to tax and Class 1a NICs and should be declared on form P11d in section N e.g. if the cost of an event is £175 per head the employee (with a partner) is taxed on a benefit of £350.
Please contact us for any further advice.
