The tax treatment of the bonus depends on a number of factors. These include:

  • whether you give cash bonuses or goods (gifts) to an employee
  • if you give goods to an employee, whether or not they can be resold for cash
  • whether the employee is a director and how much they earn.

The simplest form of bonus is to give someone who earns less than £8,424 a year goods that cannot be resold for cash. These are exempt and don’t have to be reported to HMRC. Examples of goods that cannot be resold for cash include anything with your logo on it.

All other bonuses have to be reported as follows:

Cash bonus: Any cash you give to employees as a bonus counts as earnings, so you’ll need to add the value to your employee’s other earnings deduct and pay PAYE tax and Class 1 NI through payroll.

Goods: If you give goods as gifts, and they can’t be counted as trivial benefits, you must: report on form P11D and pay Class 1A National Insurance on the value of the benefit.