Could rewarding your employees give them a larger tax bill?

  • by Carole Jordan
  • 04 Jul, 2017
tax on small business employee rewards accountant brighton

The tax office want to tax EVERYTHING you give your employees, even those trips down the pub or the thank you presents you buy for them. But there is a way you can pay the tax bill yourself so your employees are not penalised this way. Read our tips on how to do this so your efforts to motivate your team are not undermined.

Have you heard of a PAYE Settlement Agreement (PSA)?

You like to treat your employees.

Usually when wanting to account for employee benefits beyond the £150 limit for ‘annual events’ and (from April16) above the £50 ‘trivial benefits’ limit you will have to adjust for these expenses in your payroll. Allowing for the correct levels of tax to be allocated to the employees as they are paid. However, this process can be fiddly and time consuming, and who wants to charge their employees for having fun?

Instead of taxing the benefits through your payroll system you can apply for a PSA, this allows you to account for the tax for your employees by using a special return form. And as it’s done after the end of the tax year it means no fiddling around with your payroll system! It also works out cheaper for you as there is no additional employee NI cost.

How do you qualify for a PSA?

HMRC procedures require that you agree the terms of a PSA before the benefit has been received, so in advance of the working tax year. BUT, you can apply for a retrospective PSA up to the deadline of the usual P11D submissions.

What is the deadline for filing a PSA?

If you’re looking to file a retrospective PSA for tax year 2016/17 then you have until July 6th 2017 to apply.  You’d better get the ball rolling now!

For more information check out the HMRC web page for PAYE Settlement Agreements . Remember that the tax and NI is all payable by 22nd October 2017.

If you’re an employer and you need help understanding how employee benefits are taxed then please get in touch ! You can call us now on: 01273 882200. Or alternatively check out our blog for other free small business advice .

Here’s a couple of other blogs around tax savings and employee expenses:

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