Beware the Employers Income Tax and National Insurance pitfalls!
The festive season is upon us and many practices issue gift vouchers/gift cards to their staff at Christmas as a reward for their hard work and commitment throughout the year.
However, from the perspective of HM Revenue & Customs, such a gift to employees is deemed to form part of their reuneration and the employer has an obligation to ensure that the award has the correct PAYE and National Insurance deductions applied. Of course, it isn't really in the spirit of Christmas for the staff to receive such a gift in one hand, then suffer PAYE Income Tax and National Insurance upon it.
If an employer wishes to ensure that none of its employees have a PAYE Income Tax or National Insurance liability in respect of the gift voucher they receive, a simple way of achieving this is to enter in to a "PAYE Settlement Agreement" with HM Revenue & Customs.
Under the terms of such an agreement, the employer meets the resulting PAYE and NIC liability on behalf of the staff, who can then enjoy the gift awarded to them, without having to suffer any associated deductions through their next pay-packet.
This type of agreement is welcomed by HM Revenue & Customs and has the following benefits:
- It is flexible, can be reviewed/renewed annually and ensures that all employer PAYE & NIC regulations are correctly adhered to
- The administration burden for the employer will be reduced
- Maintains good staff morale - the employees will receive their gift awards free and clear of any Income Tax or NI liabilities
- Cash flow – the resulting PAYE Income Tax and NICs not payable until 19 October of the following tax year (for example, the tax and NICs due in respect of Xmas vouchers presented in December 2015 will not be due until 19 October 2016).
- The face value cost of the gift vouchers plus associated tax and NICs paid by the employer can be set against the employer’s taxable profits.
For any further information on how this arrangement works and how to apply for a PAYE Settlement Agreement, please contact us. For our clients, all of this process can be administered by BW Medical Accountants and we will guide you all of the way.