You don’t usually 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).

In this article 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 tax rules for employers giving presents

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 costing an employer more than £50 must 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

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 in order to avoid a not-so-festive slap on the wrist from HMRC it’s important to know where this leaves you in terms of tax.

• Employees don’t need to declare or pay tax on a gift worth less than £50 from their employer

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 must be declared to HMRC regardless of the value. The amount will appear on your payslip and will be liable for tax and National Insurance.

Do I need to pay tax on gift vouchers from my boss?

Vouchers that can be exchanged for cash are treated in the same way as actual cash, so your employer will need to include them on your payslip as part of your taxable earnings. 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 give you a present at the end of the year to say thanks 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 a particularly generous customer wants to gift you something worth more than £250, you’ll 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 as long as it’s a ‘trivial’ present (worth less than £50 in value). You can simply enjoy the kind gesture and the knowledge that your clients appreciate you.

Any gift over the £50 trivial threshold will need to be declared to HMRC through your Self Assessment tax return so you can pay the appropriate tax and NI on it.

Gifts of any value are taxable and must be declared if they can be interpreted as payment or compensation for your services.

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. It won’t be 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 must be clearly branded (not just the packaging), and intentionally designed for advertising purposes.

 
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