Christmas bonuses – the rules

It’s that time of the year again where many of us are feeling generous and what better way to thank your staff for all their hard work over the past 12 months than by giving them a Christmas bonus.

While you might think that you are simply doing a nice thing for your staff, there are some tax rules that employers need to be aware of. If you are planning on giving out Christmas bonuses or gifts to your employees this year you must make sure to follow the rules around tax, National Insurance and reporting.

We have listed below a few things you need to know about Christmas bonuses as an employer…

Types of bonus

What you need to do when it comes to reporting depends on the type of bonus you give to your staff.

This might be a cash bonus or it could be in the form of gifts/goods. If you give goods as a Christmas bonus you need to consider whether they could be resold for cash.

When you need to report bonuses to HMRC

Any cash bonuses given to an employee count as earnings and are therefore taxable so need to be added to the value of the employee’s other earnings.

You will need to deduct and pay PAYE tax and Class 1 National Insurance through the usual payroll method. If you are giving goods to staff as a Christmas bonus or gift you must report it on a P11D form which deals with expenses and benefits and pay Class 1A National Insurance on the value of the gift.

The amount you are required to report to HMRC depends on the type of gift or bonus. For cash bonuses, you must report the total amount you are paying to the employee. For goods with no resale value, you must report the amount that the gift cost you. For goods with a cash resale value, you must report the amount that the gift cost you or the resale value – whichever is higher.

When you don’t need to report bonuses to HMRC

If the gifts you give to your employees at Christmas can be counted as ‘trivial benefits’ you do not need to pay tax on them. These are smaller gifts such as a bunch of flowers or chocolates unrelated to performance.

If you are unsure whether your Christmas bonuses are subject to tax, or would like more information on what you need to report and pay to HMRC, feel free to get in touch with us here at Magpie Accountancy.