Christmas bonuses and HMRC

The festive season is in full swing and some lucky employees can look forward to more than just the office party and dressing up on Christmas Jumper Day.

December also marks a time when some companies give their staff Christmas bonuses, as a thank you for all their effort and achievement over the last 12 months. And while this financial cherry is hugely welcomed by staff, chief executives and company directors should take note of the rules surrounding Christmas bonuses – as they can have an effect on PAYE tax and payroll.

Ho Ho Ho – what you should know 

In the eyes of the government, Christmas bonuses are counted as earnings, so as with all other elements of employees' wages, will need to be reported to HMRC in order for certain deductions to be made.

As an employer you must add the value of the Christmas bonus to your employees' other earnings and then deduct and pay PAYE tax and Class 1 National Insurance through your payroll.

If you reward your staff at Christmas with goods instead of cash you must pay class 1A national insurance on the value of the bonus and report it on form P11D, which deals with expenses and benefits. There are exceptions to this rule, however, if the goods you give as a bonus can be counted as 'trivial benefits'.

These benefits are those that are excluded from tax rules if they are deemed small enough and are connected to an employee's welfare – such as giving a member of staff a bunch of flowers if they're unwell.

Paying up for parties

With festive treats in the frame, businesses should also be aware of the rules and regulations surrounding entertaining staff at Christmas.

The annual office party can attract some tax relief you'll be pleased to hear. Entertaining, under which company festivities fall, attracts tax relief as a deductible expense and if you are VAT registered, this can be reclaimed. Be aware however, that any VAT on non-staff entertaining – such as taking clients to lunch – cannot be reclaimed.
Festive get-togethers can also have an impact on employees with potential income tax implications. Party-planners should aim to keep the cost of celebrating to under £150 a head – including incidental costs such as taxis and hotels – so employees are not hit with additional income tax.

HMRC offers the £150 sum as a concession but organisers must follow strict guidelines to ensure they benefit from it. These rules cover the invite list (are spouses or partners attending?) and the regularity of the event (the Christmas party must be shown as an annual event that all staff are invited to). 

More details about Christmas parties and HMRC can be found here

A festive helping hand

As payroll, PAYE and cash flow experts the AMR team is on hand to help you plan and manage your festive finances. We can take care of form filling when it comes to Christmas bonuses and offer support and advice when party planning.

Get in touch to discuss your yuletide plans and find out more about how we can help make your celebrations go with a bang.

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