Christmas bonuses or gifts paid in cash by employers to employees are almost invariably taxable as earnings. The Courts have upheld decisions on many occasions and this can mean that a gift from a well-intentioned employer is worth less than the giver or the recipient initially expected.
If you are an employer and looking to give a Christmas bonus to your employees, then your best option is probably to give them a gift. To ensure that this is not a taxable gift, it is important to confirm that the trivial benefits in kind (BiK) rules apply.
The tax exemption applies to trivial BiKs where the BiK:
- is not cash or a cash-voucher;
- costs £50 or less;
- is not provided as part of a salary sacrifice or other contractual arrangement; and
- is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.
For example, a turkey that cost £45 would qualify as would a £15 bottle of wine. It is also possible to provide employees with a gift voucher (not a cash-voucher) if the value is £50 or less. It is important to remember that the gifts shouldn’t be given in recognition of the employees’ performance but merely as a gesture of goodwill at Christmas.
There is an annual cap of £300 for directors or other office-holders of close companies and to members of their families or households. The £300 cap does not apply to normal employees.
There is no longer a requirement for employers to report these benefits on P11Ds or PAYE Settlement Agreements. However, if the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit, then the gift must be reported on form P11D and employer Class 1A NICs will be payable.