How to give your staff a tax-free Christmas Bonus
Christmas is coming, and the tax man’s getting fat, but with some careful tax planning, you can ensure that you and your staff aren’t the ones filling up his plate.
Christmas is a time for giving and a seasonal bonus is a fantastic way to show your appreciation.
Your supply of Christmas spirit will soon be running low, however, if your generosity results in painful additional tax deductions or a visit from the HMRC.
The most traditional way of delivering bonuses to staff is through a cash gift, but could there be a more tax efficient way to reward your staff? All cash bonuses are subject to income tax, meaning that your staff won’t receive the full amount, and even physical goods with a significant monetary value are subject to a tax liability.
At Accountant’s Plus we specialise in helping businesses find a smarter way to handle their taxation obligations at all times of the year and have put together this helpful guide to help you minimise the tax impact of Christmas bonus giving.
Can a Christmas Bonuses be Tax-Free?
It is possible to give your staff small tax-free gifts at Christmas, but you must be careful to comply with certain legal conditions.
Tax-free gifts must not be given in cash, or in vouchers that can be exchanged directly for cash.
If you do use vouchers, and this can be a good option, the value of the voucher must not cost you as an employer more than £50, nor can is form part of a salary sacrifice scene. The voucher cannot be included in the employees’ contract either, as an entitlement or as a performance incentive.
These vouchers fall under ‘trivial benefit’ exemption and are a highly effective way to deliver tax-free Christmas bonuses for financially savvy businesses.
If the vouchers that you intend to give your staff fall into these rather tight restrictions, they can not only be given as a Christmas bonus alternative that is exempt from Income Tax Liability, but their cost can actually go down as a tax-deductible business expense.
If you do wish to reward staff with cash instead, just be aware that you will need to add this to your employers’ earnings total and deduct the appropriate PAYE and NI via your payroll as normal.
What about a Christmas Party?
Another great way to reward your staff without unnecessary tax deductions is to throw them a cracker of a Christmas party.
Depending on the size of your workforce, a Christmas celebration could range to anything from a quiet meal for just a few people to a major function for hundreds. Either way, tax rules apply, and you must meet certain criteria to be able to write off parts of the event as tax-deductible expenses.
The most important of these is that the event must not cost more than £150 per head. This doesn’t just include each individual’s food and drink, but also the hire of the venue, any entertainment, the bar bill, and any transport or accommodation paid for by the company.