Christmas Bonuses and Tax Implications for UK Businesses

Looking to treat your employees over Christmas?

Many UK businesses express their thanks to employees in way of a Christmas monetary bonus in their last paycheck of the calendar year. Whilst it’s always a lovely surprise, you must be aware of the tax implications associated.

Tax & National Insurance Contributions (NICs)

As with regular income, Christmas bonuses are subject to tax. They are treated as additional earnings, and employees must pay income tax on these sums. Similarly, you also need to consider National Insurance contributions alongside this. As a business, you must deduct and pay PAYE tax and Class 1 National Insurance through payroll.

If you are giving goods as Christmas gifts, and they can’t be counted as trivial benefits, you must report on form P11D, and pay Class 1A National Insurance on the value of the benefit.

If you need advice regarding bonuses, it is recommended to speak to a financial expert or consulting with HMRC directly, to receive tailored guidance based on the business’ or employee’s circumstances.

Find detailed guidelines from the government website.