A couple both work for the same employer and are getting married.  The employer wishes to give them a wedding gift totalling around £300. How can this be reported to HMRC so there is no tax charge on the gift to either employee?

There are several methods for benefits to be reported to HMRC.  The most common are by the employer payrolling the benefit in ‘real time’ so the tax liability is paid by the employee through the payroll at the time the benefit is received or by reporting the benefit on a P11D following the end of tax year the benefit has been received.  The P11D would then result in the employee ‘s tax code being adjusted by HMRC in the following tax year to account for the benefit received previously.

However, the employer has expressed a wish to cover the cost of any additional tax to the employees who are receiving the gifts themselves. As the gifts cannot be classed as trivial due to them not meeting the requirements needed for this classification, another option the employer could consider is setting up a PAYE Settlement Agreement with HMRC. A PAYE Settlement Agreement or PSA allows the employer to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable benefits or expenses for their employees.  The legislation for PAYE Settlement Agreements is set out in ITEPA 2003 S703 – 707.

To be able to use a PSA, an employer must apply for the agreement from HMRC.  To do this, they must write to HMRC Business Tax and Customs describing any benefits or expenses that they wish to be covered by a PSA.  If HMRC agreed that the PSA could cover the gifts given to the employees for their wedding, then any gifts to employees of this nature could be included in the employer’s PSA in future years. How to apply for a PSA

A PSA can be entered into at any time before 5 July following the end of the tax year to which it first applies. Once a PSA has been agreed, the agreement is continuous until the employer contacts HMRC to change the benefits covered or cancel the PSA. See change or cancel a PSA

You must pay any tax and Class 1B National Insurance (current rate 13.8%) owed under a PSA by 22 October after the tax year the PSA applies to or 19 October if you pay by post. See Deadlines and Payment

There is no statutory requirement for employers to tell employees what is included in their PSA but if employers do share this information with their employees, it will most likely reduce any queries that the employer may receive from employees who are completing their own tax returns.

In association with Croner Taxwise

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