Rewarding Employees Tax Efficiently

Statutory Residence Test

With a successful team and the buzz of a sales environment, celebrating successes or rewarding employees on business wins become more and more frequent. You may also find that you are trying to find new ways of rewarding your employees for different types of successes. With this in mind, it is important to know what the tax position would be during such times. Rewarding employees with vouchers or hampers for example, would be a taxable benefit and tax would be payable by the employee. On top of this a P11D returns for each employee rewarded will also be required, and so there is an increase in administration.

Another Option…

PAYE Settlement Agreements (PSA)
This is a great way to provide certain expenses and benefits to your employees without them bearing the cost of tax (PAYE) and National Insurance (NI). Instead you the employer will settle the PAYE and NI.
Items that you could include are:

  • Employee entertaining
  • Gifts to employees, for example birthday presents, anniversary gifts, get well soon etc
  • Employee incentive schemes, for example childcare vouchers
  • Cost of Christmas parties and similar entertainment
  • Other small items such as mobile phone bills recharged to the business (where the phone line is not registered in the business name and there is a fixed element to the cost).

For an item to be covered by a PSA the expense must be minor items, irregular items or items that are difficult to quantify.
How does it work:
1.Discuss the types of expenses you would consider within a PSA
2.Once agreed with HMRC an annual calculation is carried out, which will report the agreed items (VAT inclusive) incurred in the tax year.
3.Tax and NI (Class 1B) will be applied on a ‘grossed up’ amount
4.The calculation and payment is due by 19 October following the end of the tax year.
This is also a great tool to use where items such as vouchers have been missed of the P11D forms and so can be included within the PSA.