The Christmas bonus. What does it mean for tax?

The Christmas Bonus

What does it mean for tax?

It is at this time of year as an employee we may be dreaming of receiving a Christmas Bonus or Gift from our employers. If you’re a Lab Owner, you may want to think about the most tax efficient way to give your team members a gift or bonus. Unfortunately, giving and receiving gifts as an employer/ employee isn’t quite straight forward and may have tax implications associated with it.

[SOURCE – HMRC WEBSITE]

lAs an employer providing Christmas bonuses to your employees, you have certain tax, National Insurance and reporting obligations.

This depends on:

• whether you give cash bonuses or goods (gifts) to an employee

• if you give goods to an employee, whether or not they can be resold for cash

What to report and pay You may have to report any Christmas bonuses to HM Revenue and Customs (HMRC), and deduct and pay tax and National Insurance on them.

Cash bonus

Any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to: • add the value to your employee’s other earnings

• deduct and pay Pay As You Earn (PAYE) tax and Class 1 National Insurance through payroll

Goods

If you give goods as Christmas gifts, and they can’t be counted as trivial benefits, you must:

• report on form P11D

• pay Class 1A National Insurance on the value of the benefit

You don’t need to pay tax on all benefits You don’t have to pay tax on a benefit for your employee if all of the following apply: • it cost you £50 or less to provide

• it isn’t cash or a cash voucher

• it isn’t a reward for their work or performance

• it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know. You have to pay tax on any benefits that don’t meet ALL these criteria.