Are employee Christmas gifts taxable?

16th November 2020

With the traditional office Christmas party looking unlikely this year, many employers are planning alternative gift ideas to reward their employees over the festive period. However, it’s important to be aware of the tax considerations of any gifts, to avoid an unexpected tax bill later. Read our guide to find out which employee Christmas gifts are taxable.

Are employee Christmas gifts taxable?

How does tax on employee Christmas gifts work?

Regardless of the season, it is possible to provide tax-free gifts to employees so long as they fall under trivial benefit criteria. HMRC’s rules on this are quite strict and in order for the gift to be classed as a trivial benefit it must meet the following criteria:

  • It must cost you £50 or less
  • It isn’t cash or a cash voucher – however shopping vouchers are allowed
  • It isn’t a reward for the employee’s work or performance
  • It isn’t in the terms of their contract

It’s important to remember that if the gift exceeds the £50 limit, the whole benefit is taxable – not just the portion over £50.

There is an annual cap of £300 per employee so if you’ve already provided benefits during this tax year, you’ll need to make sure that any employee Christmas gifts don’t exceed this limit.

Examples of trivial benefits include:

  • Company meal out
  • Shopping vouchers (not cash vouchers)
  • Bottles of wine
  • Gift hampers
  • Presents to celebrate birthdays/new babies/work anniversaries/Christmas

Christmas bonuses

Any performance related rewards, including cash bonuses, are not included in trivial benefit rules.

Gifts which are provided as an incentive or reward for good work must be declared on a P11D form for each employee – whether it is a £15 bottle of wine or £100 shopping voucher.

Cash bonuses must be paid via the employer’s PAYE system and are subject to National Insurance and income tax.

Company directors – employee Christmas gift rules

The rules are slightly different for company directors of close companies (a company with five or fewer directors).

Trivial benefits provided to a director or other office holder of a close company should not exceed £300 in the same tax year. Receipts should be kept for all trivial benefits.

Trivial benefits can also be provided to a family member of a director claimed under their annual allowance, again capped at £300.

Talk to the experts

Get in touch with our team of tax experts if you have further questions about the tax implications on employee Christmas gifts.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article.

Chartered Accountants in Sunderland, offering expertise on everything from Tax and Business Planning,
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