Navigating Tax Rules for Staff Christmas Gifts

Published on December 05, 2022

Employee Gifts

Christmas Thinking of spreading some festive cheer by giving your staff gifts this Christmas? It's a thoughtful gesture, but you should be aware of the tax rules that apply to ensure the gifts remain tax-free for your employees.

Are Christmas Gifts to Staff Taxable?

Employers often like to give gifts to their staff, especially during holidays like Christmas or on birthdays. As long as the cost is considered 'trivial,' there won't be any Tax or National Insurance payments required.

A trivial benefit is essentially a gift that costs less than £50, which includes VAT and delivery expenses. Examples might include a bottle of wine, a bouquet of flowers, or a box of chocolates.

For more detailed information on trivial benefits, refer to EIM21865 and onwards.

What Happens When a Christmas Gift Exceeds £50?

If the value of Christmas gifts to staff exceeds £50, it needs to be reported to HMRC, typically via the employee's P11D form.

Keep in mind that the £50 isn't an allowance. So, if you give a gift that costs, say, £60, the full amount would be taxable. The employee would need to pay Tax, and the employer would have to cover National Insurance.

Taxation of Cash Bonuses and Vouchers

Any Christmas presents or gifts given to employees in cash form will be considered taxable earnings. This means these cash gifts will appear on the payslip and be subject to Tax and, where applicable, National Insurance.

Vouchers that can be exchanged for cash are treated similarly to cash, where the employee is taxed on the voucher's full value.

Taxation of Non-Cash Vouchers

Vouchers that can only be exchanged for goods and services, known as non-cash vouchers, follow different rules.

If these non-cash vouchers exceed £50, they become taxable and must be reported on the employee's P11D. However, non-cash vouchers under £50 fall under the trivial benefits exemption, provided specific conditions are met.

Taxation of Staff Gifts from Third Parties

Employees might receive Christmas gifts from third parties, such as a thank-you bottle of Champagne from a customer or supplier. If the gift's value doesn't exceed £250, it won't be taxable for the employee.

Tax Implications of Giving Christmas Gifts to Clients

When giving gifts to clients, things can get a bit tricky. Non-promotional gifts are not deductible against profits. They fall under the category of entertaining, which isn't tax-deductible. Examples include alcohol, food hampers, or tobacco.

On the other hand, promotional gifts to clients can be considered advertising expenses and are tax-deductible. To qualify, these gifts should prominently feature your company's branding or logo. This might include branded stationery like pens, diaries, calendars, mouse mats, mugs, and more.

Tax Implications of Hosting a Staff Christmas Party

In a nutshell, as long as the Christmas party is available to all staff and costs less than £150 per head, it remains a tax-free event.