Tax rules for businesses making gifts at Christmas

by Michael Blaken

Published on 1st December 2021

It’s beginning to look a lot like Christmas, and for business owners this may also mean the time for making gifts to your staff and to your contacts, or providing some entertainment.

tax rules and gifting

However, it is important to remember that HMRC is ever watchful, so before you get carried away with the season of good cheer, it’s a good idea to familiarise yourself with what does or does not incur any tax.

If you are overly generous, you may need to pay tax and National Insurance. Moreover, if you fail to declare taxable gifts, then you could also face penalties. Merry Christmas!

The office Christmas party

If you are going ahead with an office party this year – and with the new Covid variant, Omicron, this is by no means certain – you may be laying on some kind of paid for entertainment.

The maximum you can spend per employee is £150 and this is the allowance for the whole year, not just Christmas, so do take into account what you have spent so far.

Tax rules on Christmas gifts

There are also tax rules around giving and receiving gifts, which apply all year and not just at Christmas

  • Cash bonuses: any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to add the value to your employees’ other earnings and take off tax and National Insurance through payroll.
  • Goods: it is only free to give a gift to an employee, client, or supplier if the gift is ‘trivial’ in HMRC’s eyes. If the items can’t be counted as trivial benefits, you must report them on form P11D and pay National Insurance on the value of the benefit.

For you, the donor, the gift is non-tax deductible. There are also complex rules governing gifts to a third party, such as making gifts to a supplier’s employees. If you are not sure of the rules, do seek advice before going ahead.

The rules are slightly different if you are self-employed. Here, you don’t have to report or pay tax or National Insurance on personal gifts (such as Christmas presents).

If you would like more help or advice on gifting and entertaining, then please get in touch with the tax team here at Optimum.

We help business owners with the tax planning, and working with businesses across Swindon, Wiltshire, Cheltenham, Gloucestershire, Oxfordshire and Thames Valley.

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