Generosity shouldn’t just be focused on friends and family over Christmas: it’s just as important to show employees how much you appreciate them.
But it’s equally important to be mindful of tax and National Insurance Contribution (NIC) issues if you’re giving employees gifts and/or putting on parties for them at this time of year; there may be an unfortunate liability to settle.
HMRC isn’t a complete Scrooge in this regard, though, so do bear in mind these helpful tax/NIC exemptions that you can take advantage of:
- £150 per head for annual functions where all employees are invited (not necessarily to the same function though, especially if you have multiple site or lots of workers)
- Up to £50 for a Christmas gift. This can now include gift vouchers (but not cash).
Where there is a tax/NIC charge (such as employee awards to recognise good performance or annual functions that cost more than £150 per head), it makes sense to put a PAYE Settlement Agreement in place. This will ensure the employer settles the tax/NIC directly within HMRC on a grossed up basis after the end of the tax year.
Where a PSA is agreed, it means that the costs don’t need to be reported on an employee’s Form P11D and there won’t be a nasty tax charge to settle when HMRC carry out a review, including penalties.