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Christmas Gifting should not be taxing

  • 2nd December 2021

It is that time of year again where I tend to eat too much, drink even more and just generally laze around, basically my favourite time of the year!

The only downside is the presents, obviously the cost side is never going to be good for an accountant, but it is actually selecting them I find difficult, I like to think I have earned a bit of a reputation as an ‘ok’ present giver, which just seems to put me under more pressure!

As we all know HMRC like to add problems and difficulties so trying to find gifts for staff and clients within HMRC’s guidance makes my present giving task even more difficult! Find yourself on the wrong side of HMRC’s gifts and you can end up with an unwanted tax bill and extra admin tasks.

To make sure we keep the festive spirit high and don’t get on the wrong side of HMRC, I’ve provided some things you may need to be aware of regarding gifts to staff and clients:

Gifts to staff

Under £50 – generally you can give gifts to your staff to the value of £50 (including VAT) which counts as a ‘trivial benefit’ so no Tax or NI payable. This does not apply to cash or cash vouchers however. Unfortunately cash gifts to staff are not a tax-deductible expense. Trivial benefits for directors, office holders and their families are capped at a total of £300 per tax year. Finally, in order to qualify, the gift cannot be contractual or in recognition for services performed.

Over £50 – any gift over the value of £50 (including delivery) will count as a taxable benefit and is taxed depending on the rules relating to the nature of the gift. It is worth noting that £50 is not an allowance, even if the value of the gift is 1 pence over, the whole amount is strictly taxable.

Cash gifts – if you do give a cash bonus to staff, this will count as earnings so will need to be added to an employee’s other earnings with deductions taken as normal through payroll.

Time off gifts – if you want to do something that has no financial cost (other than lost productivity) and attracts no tax, you could allow half a day’s holiday to staff for Christmas shopping or to watch the children’s Christmas nativity.

If you wanted to improve your CSR and staff morale you could even consider a team building day to support a local charity at Christmas time.

Gifts to clients

In order for gifts to be tax deductible and for VAT to be reclaimed these must carry a clear advertisement for the business (branding or logo) which must be on the gift itself, not just the packaging and must cost less than £50. It is also worth noting that a series of gifts to the same individual should not exceed more than £50 in a single accounting period.

Gifts exceeding £50, gifts of alcohol, food, drink or tobacco or non-promotional gifts would not be tax-deductible as an expense.

As I have already alluded to, one of the main things I enjoy about Xmas is the drink and the partying. As you may have guessed HMRC can be a bit of a kill joy with this one too!

I’ve therefore noted below how again HMRC attempt to ruin everyone’s fun on Christmas parties and Client entertaining to make sure you don’t fall into their traps and give them an early Xmas present!

Christmas Parties

Provided your Christmas party meets certain rules, it can be tax and NI free.

Whether virtual or physical you have an allowance of £150 per employee for annual functions such as Christmas parties or Summer BBQ’s. This is the cost to the employer and includes VAT, transport and overnight accommodation. The party must be open to ALL employees.

The £150 limit is not an allowance therefore any amount over £150 will result in a taxable benefit on the employee on the whole amount.

The cost per head of all annual functions must be less than £150 but the headcount can include spouses.

Client entertaining

You cannot claim a tax deduction or reclaim any VAT charged that relates to client entertaining.

So, there you have my gift to you, hopefully some advice, which I’m pretty sure doesn’t fall into any of HMRC’s traps!

Read more on: Tax advice

Written by: Matthew Priest

Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.