Common Christmas payroll errors

18 December, 2015

Christmas is just around the corner, but even with all the office parties and Christmas jumpers on display, in-house payroll professionals still have to ensure that workers are paid correctly and on time.

There are a number of additional payroll challenges during the festive period, and we have written this short list of four reminders to help protect you against some of the more common mistakes if you or your team will be processing your own payroll:

Full Payment Submission (FPS) and Employer Payroll Summary (EPS) changes

Even if your company has decided to pay employees earlier than usual for the month of December, it is crucial that the FPS submission pay date is still input as the normal contractual pay date.

The EPS, meanwhile, should be sent as normal between the 20th of the current month and the 19th of the following month. Be sure to do this correctly, as an incorrect submission could result in anything up to a £400 penalty charge from HMRC.

Changes to payment dates

Christmas Day 2015 and New Year’s Day 2016 both fall on a Friday. This will have an impact on some businesses and mean that they have to bring forward their normal pay dates to accommodate this. Businesses with a weekly payroll, for example, might find that they have to pay employees in advance in order to ensure any days of business shut down are covered.

Christmas bonuses and gifts

Christmas bonuses or gifts that are given to employees have associated tax rules that can be more time-consuming for your in-house payroll team to manage if they are unfamiliar with the various rules.

For payroll purposes, it is important to consider whether a gift is classed as a cash present or physical goods and whether it can be resold for cash. The other main thing to consider is if the person receiving the gift is a director, and the individual’s earnings also have a bearing.

Christmas parties

The annual Christmas party can be exempt from tax under certain conditions, but the most important rule is that a £150 per head (including VAT) budget must be in place for each person attending the party (including guests), and this amount must not be exceeded. (If spending goes above £150 per head, then all the costs will be taxable as a benefit-in-kind.) Overnight accommodation and taxi transfers also go towards the annual party tax calculation.

If the per head budget limit is exceeded, it must then be reported on each employee’s P11D, or the tax can be paid by the employer via a PAYE settlement agreement (PSA). Tax would then need to be paid by employees and the employer would be responsible for Class 1A national insurance (NI).

To ensure that you complete your Christmas payroll without any errors, please contact us.