Gifts for Employees 

A small, thoughtful gift can go a long way to show appreciation for your team. HMRC’s trivial benefits rule allows you to provide tax-free gifts to employees, provided they meet the following criteria:

• Each gift costs £50 or less. 
• It is not cash or a cash-equivalent (e.g., cash vouchers). 
• It is not given as a reward for work or performance. 
• It isn’t part of any contractual agreement. 

Popular options include Christmas hampers, wine, chocolates, or non-cash gift cards. These gifts are tax-free for employees and can also be claimed as a business expense. 

Employee Entertainment and Christmas Parties 

A festive celebration for your team is another great way to spread holiday cheer. HMRC allows businesses to deduct the cost of staff entertainment if the following conditions are met:

• The total cost is £150 or less per head, including VAT. 
• The event is open to all employees.

Keep in mind that if the £150 limit is exceeded, the ENTIRE cost will become taxable as a benefit-in-kind. 

Gifts for Directors 

Directors of close companies (typically businesses with five or fewer shareholders) can also take advantage of the trivial benefits allowance. Directors are entitled to receive up to £300 worth of trivial benefits per tax year, as long as no individual gift exceeds £50. 

Non-cash vouchers, such as gift cards for shops or restaurants, are an excellent option that qualifies under this rule. Just ensure the gifts are unrelated to work performance or contractual obligations. 

Gifts for clients and suppliers 

When it comes to client and supplier gifts, there are some restrictions. For these gifts to be tax-deductible: 

• The total cost must be less than £50 per person annually. 
• The gift must feature a clear advertisement for your company, such as branded merchandise. 
• Food, drink, tobacco, or non-branded items don’t qualify unless they are part of promotional materials. 

Additionally, VAT is generally not reclaimable on client gifts, except for promotional items that meet the necessary criteria. 

Reclaiming VAT on Christmas gifts 

Employee gifts: VAT can typically be reclaimed, provided the total cost of gifts to an individual employee doesn’t exceed £50 in a 12-month period. 

Client or supplier gifts: VAT recovery is limited to branded promotional items only. 

Final Thoughts 

Christmas is a great opportunity to show appreciation to employees and clients while making smart use of tax allowances available to your business. Follow HMRC’s guidelines, track expenses carefully, and you can celebrate the season in a tax-efficient way. 

Need assistance managing your company’s festive expenses? Contact us for expert advice on keeping compliant with UK tax rules!