Gift giving is often seen as an important part of the festive season. Whether for family or friend or loved ones across the miles, in different parts of the world. What about employees? What if you want to give them a gift during the season of goodwill? What are the rules around Christmas gifts for employees, colleagues and maybe even your employer? Let’s take a look.
Secret Santa is fine. You know, setting a limit of perhaps a fiver on a present spend and then putting everyone’s names into a hat and drawing them out at random. Then worrying about the person you’ve got and trying your hardest to swap with someone for the person you are a little bit in love with in the office. We’ve all seen it! This form of gift giving is fine between colleagues. It also adds some fun and festive joy into the silly season. Especially when you all wear ugly Christmas jumpers on gift swapping day!
Where issues do occur is gifts directly to employees from the boss. This is because there could be tax implications of such as giving. Some companies decide to give a festive bonus to their employees at Christmas time. This must be seen as a part of their pay for the period in question and tax and national insurance deducted as appropriate. Let’s take a net bonus of say £500 for example. You might think that’s generous but what you might not realise is that it’s going to cost you much more than that, more than you might expect. You’ll need to pay the tax as well as the employee and employer NI on top. If the employee has an unusual tax code or perhaps even a K code (where adjustments are added to pay rather than deducted from it), it could increase the amount it costs you to provide said bonus, significantly. If you’re wanting to gift a bonus, you’re far better to pay a gross bonus (before deductions) due to the fact that that different employees will most certainly have various tax codes.
Of course, there are ways to gift a present without having to deal with tax and NI liabilities. The gift simply has to come under a few rules. Firstly., it cannot be cash or a voucher. It must cost you less than £50 to provide the gift. It cannot be viewed as a reward for their performance and it can’t be part of the terms of their work contract. Gifts in this criteria are known as trivial benefits and are exempt from tax and national insurance. Any gifts that do not fall under this need to be reported on a P11D form. This will calculate the NIC required for both employer and employee. Said form must be submitted after the end of the tax year but before 6th July, giving you three months to send it in.
It’s important to remember that these rules only apply to businesses who have employed staff and a payroll. Self-employed people can gift to an employee without worrying about reporting any implications.
So as you can see, it all depends on what you want to buy your employees this Christmas. Maybe stick to a small gift or partake in office wide secret Santa gifting. If you’re unsure what does and does not apply to your situation, double check with HMRC or your bookkeeper. Enjoy present buying this festive season!