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
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
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
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.