Rewarding Employees Tax Efficiently

Statutory Residence Test

Are you celebrating successes or rewarding employees on business wins in the most tax efficient way?

There are a number of ways you can reward employees, but it is important to remember that different benefits have different tax implications. Vouchers or hampers for example, are taxable benefits and tax is payable by the employee. In addition, a P11D return 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 the employer settles the PAYE and NI.

Items included 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 classified as one of the following: minor items, irregular items or items that are difficult to quantify.

How it works…

  1. Confirm with HMRC the expensive you would like the PSA to include
  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.

To find out more about PAYE Settlement Agreements, contact Lee Manning at lee.manning@raffingers.co.uk.