0800 0482 737

'Tis the season to be jolly!

'Tis the season to be jolly!

With Christmas upon us, payroll managers will be experiencing some annual adjustment planning with the holiday season.

Bank Holidays
In England, Wales and Northern Ireland, the shared Bank Holidays of Friday 25th (Christmas Day), Monday 28th (Boxing Day Substitute) and Friday January 1st (New Year’s Day) cause adjustment to payment timetables. Additionally Scotland sees additional Bank Holiday of Monday January 4th (2nd January substitute day).

Although there is no statutory right to paid leave, employees may receive some of their paid holiday entitlement across the Christmas Period or have alternate contractual rights. Some may even have enhanced uplifts in pay when working through the season.

During this Christmas Period many employers bring forward pay day, some have seasonal close downs and may pay two weeks’ instead of one, others may pay Christmas bonus or provide a gift etc. Cash bonuses count as earnings and added to the normal employee earnings for tax and Class 1 NICs.

Pay Date changed for Christmas
If an employee’s regular pay day falls on a non-banking day in the holiday period and therefore chooses to pay employee on the prior or next banking day, HMRC instruct employers to treat the payment for PAYE purposes as if they had been made on the regular pay day. For example, it the regular pay date would be 25th December and the payment is brought forward to the 24th December instead, the FPS should show the regular date of 25th December.

Christmas shutdowns and payment of holiday in advance
If an employer pays their Christmas season holiday pay in advance so that instead of the usual one weeks pay they receive two followed by a week with no payment, then PAYE is account in the following way:

  • For employees with a cumulative tax code, calculate and record PAYE using the free pay for the last week paid.
  • For employees with a week 1 / month 1 tax code, divide their holiday pay for each of the weeks and work out the PAYE separately.

The tax period is advanced to reflect 2 weeks payment and the FPS reports that the number of periods covered is 2 for 2 weeks.

For weekly payrolls only there are special NIC procedures to follow:

  • Method A – Work out the NIC due on each individual week
  • Method B – Work out NIC on the whole some based on the number of period being used – this method can be used for any pay frequency.

Christmas Gifts
Where an employee is provided with goods as a seasonal gift, then a consideration need to be made as to whether the item can be resold or exchanged for cash by the employee.

Trivial Benefits – Seasonal Gifts for Christmas and flu jabs
There are no set rules for determining what types of benefit are trivial although some accountancy firms suggest that a value of up to £50 be considered appropriate. Where employers provide employees with Christmas gifts such as a turkey, a bottle of wine or a box of chocolates or even the flu jab – HMRC do state that “all of these gifts can be treated as trivial benefits”. Cash benefits, benefits with a money’s worth and non-cash vouchers (such as shopping vouchers) are not regarded as trivial.

Christmas and New Year Parties
There are exemptions for employer provided a party for employees that meet three conditions:

  • It’s an annual event
  • It is open to all employees to attend (a single location event does qualify)
  • The cost per head isn’t more than £150

The £150 threshold is not an offset against the cost for a more expensive event and applies to each attendee included guests. If the £150 per head is exceeded then there is no exemption and the full cost would be considered a benefit on the ‘employees’ who attended.

Third Party Gifts
Small gifts of goods made to employees are also exempt from tax when conditions are met:

  • Is not provided/procured by the employer
  • Is not made in recognition or in anticipate of the provision of service performed by the employee
  • Is not cash, vouchers or securities that can be converted to cash
  • Does not exceed £250

Wishing you a smooth and comfortable December pay cycle, a great Christmas and a Happy and prosperous New Year.

Related articles:

About the author

Simon Parsons
Director of Payments, Benefits & Compliance Strategies

Simon has been a major contributor to SD Worx’s payroll expertise since 1984. Besides being influential in the development of SD Worx’s payroll services, he is a major presence on a number of HMRC consultative groups and committees.

A fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is a regular author and speaker on payroll matters. He is also Chair of IReeN, the electronic exchange with government user network, and the Honorary Chair of the British Computer Society (BCS) Payroll Group (The Chartered Institute for IT). 

Simon has won a number of awards in the past including the Strathearn Award for Lifetime Achievement at the 2012 Pay & Benefits Awards, the Payroll Alliance Award for Advancing the Payroll Profession in 2010 and IPP Person of the Year in 2006.

Follow on Twitter
Connect on LinkedIn