In general, you don’t need to worry about paying taxes on your Christmas presents. You can unwrap your gifts in peace without needing to tell HMRC about your hundredth pair of stripey socks.

The rules might be a bit more complicated if you’re:

• Self-employed and receive gifts from a client
• An employer gifting staff
• An employee receiving a gift from your employer

Tax and Christmas gifts don’t always come hand-in-hand in these instances but there are some circumstances where you’ll be liable for tax or National Insurance (NI).

We take you through the various rules and regulations for each scenario so you can enjoy the season of giving, knowing you’re ticking all the correct tax-related boxes.

The rules for employers

As an employer, one of the most heartwarming and cost-effective ways to show your staff appreciation is to treat them to something nice for Christmas. A kind gesture like this can go a long way in boosting important things like employee morale, motivation and loyalty.

But what are the tax implications of giving staff a Christmas present? You won’t need to worry about tax or National Insurance if it’s something HMRC considers to be a ‘trivial’ gift, but you might need to account for anything outside of that category.

What counts as a trivial gift?

In HMRC terms, a trivial gift or benefit is a one-off given to directors and employees during the year. Its value must be less than £50, including any VAT or delivery charges you had to pay. It also can’t be:

• Cash, or a voucher they could exchange for cash
• Given to reward good performance
• In the terms of their contract

What happens if it’s not classed as trivial?

Any staff gift that costs more than £50 will need to be reported to HMRC as a benefit in kind. Your employee will pay tax on the benefit’s value, and you as their employer will need to pay National Insurance on it.

 
So, if a gift costs you £65 (including VAT and shipping), you will need to declare the full amount, and tax and NI will be due on the full £65, not just the £15 above the threshold!

The Christmas tax rules for employees

As an employee, receiving a Christmas gift from your boss is always a nice way to sweeten a year of hard work and a welcome addition to the festive period. But it’s important to know where this stands you in terms of tax, in order to avoid a not-so-festive slap on the wrist from HMRC.

If you receive a gift from your employer worth less than £50, you won’t need to pay tax on it or declare it to HMRC. Anything above that, and your employer will need to report it to HMRC (and you’ll be taxed on the full amount).

Your employer will (or should!) give you a copy of the information they report for your records. You’ll need this information if you complete a Self Assessment tax return.

Does it matter what the gift is?

Typical examples of the types of gift you receive might include things like hampers, floral arrangements or bottles of wine.

If your employer decides to gift you cash at the end of the year, such as a Christmas bonus, this will be classified as taxable earnings and will need to be declared to HMRC – regardless of the value. The amount will appear on your payslip and will be liable for tax and National Insurance. Vouchers that can be exchanged for cash will be treated in the same way.

Gift vouchers (which can’t be exchanged for cash) are only taxable if they’re worth more than £50.

What if a customer buys me a Christmas present?

Sometimes a customer or a client will want to give you a present at the end of the year to say thank you for all your hard work. As long as this gift has a value of less than £250, it won’t be taxable, and you won’t need to declare it to HMRC.

If you have a particularly generous customer who wants to gift you something worth more than £250, you will need to report this to HMRC and pay the necessary tax on it.
 

The rules for self-employed people

If you’re self-employed and have clients who want to send you a Christmas gift, HMRC don’t need to know about it as long as it’s a trivial present. You can simply enjoy the kind gesture and the knowledge that you’ve got generous clients who appreciate you.

As we covered earlier, trivial gifts are those that are worth less than £50 in value. Any gift worth more than this will need to be declared to HMRC through your Self Assessment tax return so you can pay the appropriate tax and NI on it.

If the gift could be seen as payment or compensation for your services, it may be considered taxable. In this case, you would need to declare it on your tax return.

What about if I want to give a gift to my client?

As a general rule, giving clients a Christmas present is treated the same as client entertainment costs so it’s not an allowable expense, and you won’t be able to offset it against your tax bill.

As ever though, there are exceptions! If your Christmas gift has clear promotional motivations and is worth less than £50 in value (inclusive of VAT and delivery costs), it may be tax-deductible. Items exempt from this are tobacco, food, drink or exchangeable vouchers. To qualify as a marketing cost the gift itself will need to be clearly branded (not just the packaging), and intentionally designed for advertising purposes.

 
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