All I want for Christmas is a…… problem-free payroll
Tackling Ye Merry December Payroll
Not only do you have to put up with your family, spend loads of money and pretend to be really happy about getting another pair of grey slippers from Auntie Edna but you’ve also got to deal with the December payroll.
Fortunately it’s all perfectly doable with a bit of planning (or outside help).
Partly because the Christmas period is just one long bank holiday and partly because everyone is skint, businesses who normally pay their staff on or around the end of the month sometimes choose to do so earlier in December, or at least offer staff that option.Some staff may not wish to change the date if they are receiving Universal Credit, in case there is an issue with their claim as a result.
This needs to be thought about well in advance: firstly because it might affect cashflow and secondly, because lots of people take holiday in December and this might include your payroll team.
If you are a generous employer you may be paying Christmas bonuses (see below), so you’ll need information from managers so you can work out who is to receive what.
Don’t leave everything till the last minute – people may call in sick or your IT system may crash. If wages go in late you won’t be a popular Christmas bunny!
If you pay your employees weekly and your business is shutting down for a week or more, you may need to pay them in advance for that time which may affect PAYE and National Insurance.
Don’t forget to make sure your staff know what’s happening, so they don’t think they’re just getting extra wages.
If members of your payroll team are taking holiday, try to manage everything in a way that avoids problems both for your own business or for them.
You need to be enough of your team are working for everything to get done but your team won’t thank you if they can’t have the holiday leave they want.Try to accommodate their wishes as far as you can – and allow people to work from home where possible. This is the season of both peace and goodwill after all!
Planning is even more important if your payroll is outsourced to an external company whose staff may not only be taking leave at Christmas but also trying to get work done early for other clients too. Speak to them about this now if you haven’t already!
If your company payday is brought forward, as far as HMRC is concerned it is as if everything still happens as normal. So the full payment submission you send to HMRC should still show the normal contractual pay date, and the employer payment summary should be sent in at the normal time, ie by the 19th of the following month.
Make sure any employees who are leaving between payday and the end of the month are paid accordingly – you don’t want the annoyance of having to get the money back from them.
Christmas bonuses and gifts
HMRC doesn’t believe in Santa Claus and are not above taxing Christmas presents.
You need to declare any Christmas bonuses or gifts you give to your team and pay tax and national insurance on them, unless the gift meets these four conditions (known as a trivial benefit):
- It costs you £50 or less to provide
- It isn’t cash or a voucher
- It isn’t a reward for their work or performance
- It isn’t something their contract entitles them to
The rules are different for cash and non-cash gifts.
Money counts as earnings, so you need to put it through payroll as normal and pay PAYE tax and class 1 national insurance, just as if your employee has earned extra that month. Non-cash gifts over £50 need to be reported on form P11D and you need to pay class 1 national insurance either on the amount the gift cost you or its cash resale value, whichever is higher.
Christmas presents from third parties, such as clients, can be taxable too but who pays the tax depends on the gift. If your employee receives cash, or a gift which could be exchanged for cash such as a voucher, the giver pays tax on it and the employer pays national insurance.
For non-cash gifts, the giver pays both tax and national insurance unless the employer arranged the gift, in which case it’s the employer who pays the national insurance. But the type of tax and national insurance paid vary too – so you might need advice from your accountant.
Turns out HMRC does have some Christmas spirit after all – there’s a tax exemption for staff Christmas parties, as long as:
- The cost isn’t more than £150 per head for everyone attending (i.e. both employees and guests), including VAT. Any overnight accommodation or taxis that the company is providing should be included in this figure
- It’s an annual event
- The main purpose of the party is to entertain staff (not clients)
- All your staff can go (or, if you have more than one location, all your staff in the location where the party is can go)
- The party isn’t paid for by a salary sacrifice arrangement
If the costs go over £150 per head, then all the costs, not just those above £150, count as a benefit in kind and need to be declared on each employee’s P11D.
The £150 is per year, not per party. So you can have a Christmas party and summer party if the combined annual cost doesn’t come to more than £150 per head.
If you need payroll advice or a helping hand with your festive finances, call us on 020 8989 5147 – we’ll have those pesky payslips and difficult deductions sorted before you can say “twelve days of Christmas”.