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
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)
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.
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.
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.