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Seasonal gifts at Christmas and the tax implications

We would like to give our staff vouchers for Christmas as a “thank you” present and would like to know whether there are any tax implications?

A gift given to an employee by virtue of their employment with the practice is a benefit in kind and would be taxable.

A common misunderstanding among practices is that vouchers can be given to staff tax free, unfortunately the Inland Revenue view these as being the equivalent of cash. Vouchers given to staff will be subject to PAYE and national insurance as a benefit in kind.

Benefits in kind should be declared on a P11D for each member of staff and the practice will be required to pay employer’s national insurance on the benefit at 12.8%. Employees who receive a P11D should inform the Inland Revenue of this benefit so that the Revenue can collect the tax on this by adjusting their tax code. If the Inland Revenue are not informed then a tax return will be to be completed to declare the benefit and tax paid on this. This can be a lot of administration and hassle for both the employee and employer when the amount of the voucher will be very small.

Practices who wish to give vouchers and do not want the burden of completing P11Ds could arrange a PAYE Settlement Agreement (PSA) with the Inland Revenue. This is an arrangement whereby certain small benefits or irregular benefits being put through the payroll would be impractical. This arrangement allows these benefits to be excluded from the deduction working sheets or P11D’s. Practices then calculate the tax and national insurance on the grossed up amount of the voucher and pay this over to the Inland Revenue.

PAYE settlement agreements are expensive for practices. For example, if a practice gave a member of staff who is a basic rate taxpayer a voucher worth £50, the practice would pay £22 in tax and national insurance, if the member of staff was a higher rate taxpayer, then it would cost the practice £44 in tax and national insurance. (See table A)

Christmas Parties
Practices can spend up to £150 per person on a Christmas party and this amount would be exempt for tax purposes. The Christmas party must be available to all members of staff and the total cost should not exceed £150 per head of those attending. Therefore this amount includes staff and their spouses.

The £150 per head is an annual amount and therefore practices could provide staff with a Christmas party and a summer BBQ, there would be not taxable benefit as long as the total amount did not exceed £150.

Where the cost of an event exceeds £150 per head, then the whole amount becomes taxable on the member of staff as a benefit in kind.

Christmas Bonuses
Bonuses paid to staff whether in cash or cheque need to be included on the payroll and PAYE and national insurance paid on them.

Tax free seasonal gifts
If you want to give a seasonal gift, you can give a turkey and a bottle of wine free of any tax.

However gifts over and above the mentioned items e.g. case of wine, hampers etc would be considered as a benefit in kind, and the value would need to be included on a P11D.

PAYE Investigations
The Inland Revenue carry out PAYE investigations to ensure practices are correctly dealing with their payroll and declaring benefits. They will look at all your records and if they pick up on vouchers given to staff which have not been declared, tax and national insurance will be payable including interest and penalties. The Inland Revenue could also go back to earlier years. It is important that you are correctly dealing with staff vouchers and bonuses through the payroll.