Planning to Give Your Staff Gifts This Christmas? Here’s How to Ensure They’re Tax-Free

Planning to Give Your Staff Gifts This Christmas? Here’s How to Ensure They’re Tax-Free Are Christmas Gifts to Staff Taxable? Employers often choose to give seasonal gifts like Christmas or birthday presents. As long as the gift qualifies as a “trivial benefit,” there will be no tax or National Insurance charges. A trivial benefit is a gift valued at under £50, including VAT and any delivery costs. Common examples include a bottle of wine, flowers, or a box of chocolates. What If a Christmas Gift Exceeds £50? Gifts valued above £50 must be declared to HMRC, typically via the employee’s P11D form. Importantly, the £50 threshold is not an allowance. For instance, a £60 gift would be taxable in full, with the employee paying the tax and the employer covering National Insurance. How Are Cash Bonuses and Vouchers Taxed? Cash gifts or bonuses are considered earnings, meaning they will appear on the payslip and be subject to tax and National Insurance. Similarly, vouchers that can be exchanged for cash are treated as earnings and taxed at their full value. What About Non-Cash Vouchers? Non-cash vouchers, which can be redeemed for goods or services, are also subject to tax if their value exceeds £50. These must be reported on the employee’s P11D form. Vouchers valued at under £50 may fall within the trivial benefits exemption if the conditions are met. Are Staff Gifts from Third Parties Taxed? Employees may sometimes receive gifts from third parties, such as a bottle of Champagne from a client as a thank you. As long as the gift’s value does not exceed £250, it will remain tax-free for the employee. What About Giving Christmas Gifts to Clients? Gifts given to clients (that aren’t promotional) are not deductible against profits, as they are considered entertainment expenses. Non-deductible examples include alcohol, food hampers, or tobacco. However, promotional gifts can be tax-deductible if they clearly advertise your company (e.g., branded stationery, calendars, mugs). DISCLAIMER: The information in this article is for general guidance and is not a substitute for professional advice. Please contact us for bespoke advice and guidance. Check Us Out on Social Media Facebook Linkedin Instagram

Planning a Staff Christmas Party? Here’s What You Need to Know to Make It Tax Deductible

Planning a Staff Christmas Party? Here’s What You Need to Know to Make It Tax Deductible With Christmas party season approaching, it’s a great time to review the rules for making your staff Christmas party a tax-deductible expense. Let’s go over what qualifies, how to keep it tax-deductible for your business and for your employees. Can a Christmas Party for Staff Be Tax-Deductible for the Business? Generally, expenses related to entertaining staff are tax-deductible for the business, including costs for their partners. However, entertaining clients or suppliers is not tax-deductible. For mixed events where both staff (plus partners) and non-staff, such as clients, attend, costs need to be allocated appropriately. Is a Christmas Party Taxable as a Staff Benefit? No, the party can be tax-free for employees if it meets these criteria: The event is an annual party or social function (e.g., a Christmas party or summer BBQ). It is open to all staff. Costs do not exceed £150 per person (including VAT). What Qualifies as an Annual Event? An annual event occurs once a year, like a Christmas party, summer BBQ, or company day out. One-off events like a retirement party or team-building activity don’t qualify as annual events and are not tax-deductible in the same way. Do All Staff Need to Attend? For the event to be non-taxable, it must be open to all employees, even if they choose not to attend, it’s also fine to hold different events for different departments or locations. However, an exclusive directors-only event would not qualify. How Is the £150 Per Head Calculated? To qualify as non-taxable, the total event cost divided by the number of attendees must not exceed £150 per head. This calculation includes all event costs (e.g., accommodation, travel, food, drink, entertainment) and VAT. Is the £150 an Allowance? No. If costs exceed £150 per person, the entire amount becomes a taxable benefit. For instance, if the per-head cost is £160, the full amount is chargeable as a benefit, and if partners attend, the benefit would be £320, applied to the employee. What If There Are Two Annual Events? The £150 per person limit applies to the entire year, not per event. If both events meet the qualifying rules but together exceed £150 per head, the business can choose which event to exempt and which to report as a taxable benefit. For example, if the Christmas party costs £100 per head and the summer BBQ costs £60, the business might exempt one event and report the other as a taxable benefit. If they both cost £75, they would both qualify as exempt events. Can Staff Contribute to Reduce the Per-Head Cost? Unfortunately, no. Even if employees contribute, the per-head cost remains taxable if it exceeds £150. Are There Reporting Obligations? If the costs go over £150 per head, you must report the benefit for each employee, typically via a P11d form, which incurs additional taxes for both the employee and employer. Do Exempt Events Need to Be Reported? No, exempt events do not need to be reported, but it’s essential to keep documentation that proves the exemption, in case it’s later required. Are Christmas Gifts to Staff Taxable? Gifts under £50 qualify as trivial benefits and are tax-free. For further details, including rules on gifts over £50, refer to our blog on “Tax Rules for Staff Christmas Gifts.” Where Can I Find More Information? For more information, visit the following HMRC resources: Expenses and Benefits for Social Functions HMRC Employment Income Manual Planning ahead will ensure your Christmas party is both enjoyable and tax-efficient for your team.Happy holidays! DISCLAIMER: The information in this article is for general guidance and is not a substitute for professional advice. Please contact us for bespoke advice and guidance. Check Us Out on Social Media Facebook Linkedin Instagram