For many companies, Christmas is the time of the year when employers look to reward employees for their hard work by awarding a Christmas bonus. Many companies also have a year end of December, which also falls timely with the company reporting year end.
Following the Autumn Statement, which took place last week, here are a couple of reasons why you may want to consider delaying your employees’ bonus until the New Year:
National Insurance – employee saving
Following the Chancellor’s announcement, from the 6 January 2024, employee National Insurance Contributions (NICs) are set to reduce by 2% from 12% to 10%.
A £5,000 bonus paid to an employee prior to the 6 January would see employee NICs of £600 at a rate of 12%, compared to NICs post 6 January of £500 at a rate of 10%. On delaying employee bonuses until after 6 January, there would be a saving of £100 for the employee.
The Chancellor did not announce any changes to the rate of employer National Insurance Contributions, which remain at 13.8% regardless of the timing of the bonus payment. Those paying NICs at the 2% Upper Earnings Limit also won’t see any benefit.
Impact on the employer
For a company with a 31 December 2023 year end, what are the accounting and tax consequences of delaying the bonus?
Accounting
If the bonus is awarded for the performance of the employee for services undertaken in the financial year ended 31 December 2023, but processed and paid in January 2024, these costs can still be accrued into the financial results as at 31 December 2023 – meaning no change on the financial results.
Tax
Tax relief is available only if the bonus accrued into the 31 December 2023 financial statements is paid within a nine-month period of the company reporting year end, i.e. 30 September 2024. Therefore, a delay in the processing and payment of a bonus one month to January 2023 will not reduce the tax relief available at 31 December 2023.
Every scenario is different and, for some employees looking to use a December bonus to fund Christmas, a 2% saving may not be appealing. However, employers should take time to consider if delaying a bonus could be financially beneficial for employees.
If you have any questions on how the Autumn Statement will impact you, speak to a team member today!
