It’s nearly Christmas, which means many people can look forward to a well-earned rest. Unfortunately, just because it’s the festive season that doesn’t mean that payroll and tax rules disappear.

If you are an employer or payroll professional, Christmas and New Year’s brings a number of potential challenges that you need to be aware of and prepare for before you can start your Christmas break.

Here are our top 5 tips to make sure you don’t run into any payroll problems this Christmas…

1 – Changes to payment dates

This year, both Christmas Day and New Year’s are on a Friday, which means that some businesses may have to bring the normal salary pay date forward by a day or two. If your business operates on a weekly payroll basis, then you might need to pay employees in advance to cover any days of business shut down over the festive period.

It is important to let your payroll team know well ahead of time what the arrangements are so they can plan and put the necessary procedures in place. As a result, your payroll processing timetable may also need to be brought forward for December in order to pay everyone on time.

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

Even if your company pay day is brought forward in December, remember that the pay date on the FPS submission should still show the normal contractual (regular) pay date.

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Submission of the EPS should be as per the standard timetable for this – i.e. sent between the 20th of the current month and the 19th of the month following. If this is done incorrectly, it could cost up to £400 in penalties from HMRC – a fine that can easily be avoided!

3 – Christmas bonuses and gifts

Many companies hand out Christmas bonuses or gifts to their employees to mark the end of a successful business year. However, while this might look really straight forward on paper, attributing the correct tax to these kinds of gifts can be a real challenge for your payroll team.

First of all, it is important to make the distinction between cash presents and physical goods. It then comes down to whether these goods can be resold for cash or not and whether the employee receiving the gift is a director and how much they earn.

This can be quite confusing and it is important you and your payroll team are clear on these definitions. Some professional companies offer payroll advice lines to give guidance on this subject so ensure you make use of these additional resources when in doubt.

4 – Christmas parties

There is a tax exemption with staff parties including Christmas, but there are some rules. It only applies to ‘annual parties’ which are available to all staff and is set at £150 per head (including VAT).

If costs go over £150 per head, then all the costs (not just that above £150) will be taxable as a benefit in kind. Overnight accommodation and taxis home must also be included in this calculation, where provided.

If you go over this limit, it must be reported on each employee’s P11D, or the tax can be paid by the employer via a PAYE settlement agreement (PSA). Going over by even £1 will mean that this all becomes reportable and tax would need to be paid by employees and Class 1A National Insurance by the employer.

It’s important to note that the amount of £150 per head applies to all those attending the function not just employees. This will come into play if employees are allowed to bring guest.

5 – Christmas working hours

There are no legal requirements around working over the festive period but, while a lot of companies choose to stay shut over Christmas and New Year’s, in some instances employees do still have to work. Make sure you don’t forget to make arrangements with your payroll team for paying those employees on time.

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