Frequently Asked Business Question:
Can I give my staff a tax free cash bonus before Christmas to reward them for all their hard work this year?
If you decide to reward your staff with cash bonuses this Christmas, then this payment will need to be taxed at source through your payroll system as it will be subject to tax and national insurance. The same treatment also applies to gift vouchers. However, there are other more tax efficient ways to reward your staff at Christmas time which you might want to consider, for example having a Christmas party. The cost of employee entertaining, as long as it’s not incidental to the entertainment of others, is allowed to be deducted for business tax purposes. If the cost per head does not exceed £150, staff will not be taxed and your business can claim tax relief on the full expense. It is also important to note that if the cost per head does exceed £150 then all the costs, not just those over £150, are taxable as a benefit in kind.
You could also consider giving your employees a gift of a mobile phone. This will not be classed as a benefit in kind and therefore will not be subject to any tax or national insurance on the employees. The expense is also deductible from the total profits of your business. It is important to remember however that this exemption from tax covers only one mobile phone for each employee.
HMRC have also granted a special concession regarding Christmas gifts which they classify as trivial. “An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.” More luxurious gifts such as wine or hampers would not benefit from this exemption however.
You can also help the environment by offering your employees free bicycles and safety equipment. Provided the bike and equipment remains Company property there is no tax charge on your employee and the cost is fully tax deductible.
If you have any long serving employees who have been with the business for more than 20 years, you can recognise their loyalty with a tax free bonus worth up to £50 for every year of service. The gift must not be cash or vouchers but could be a holiday or television or other tangible object. You can make such a gift to an employee every 10 years but not more frequently.
Finally if your staff eat and drink too much over Christmas, you can also kick off the New Year with a free medical check-up or health screening assessment.
The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.