The gift of knowledge: How to keep Christmas tax-free

As the festive season approaches, many employers want to show appreciation to their teams with gifts or celebrations.

It’s a great way to boost morale but don’t let a few tax rules turn your generosity into an unexpected cost.

Here’s what you need to know about the exemptions available to you to keep the cheer without the fear.

The £50 Trivial Benefit Rule

HMRC’s trivial benefits exemption is your best friend for small, thoughtful gifts. If the cost of the gift (including VAT) is £50 or less per employee, and it’s:

• Not cash or a cash voucher
• Not linked to performance or contractual obligations
• Not part of a salary sacrifice arrangement

…then it’s tax-free. For directors of close companies, there’s an annual cap of £300 across all trivial benefits.

If the gift exceeds £50, the whole amount becomes a taxable benefit-in-kind and not just the excess. Class 1 NIC may also be due if the gift is a voucher.

Don’t forget VAT! VAT on gifts can be reclaimed if the total cost of gifts to an individual in any rolling 12 month period doesn’t exceed £50 (excluding VAT). Go over that, and output tax is due on the full amount.

Christmas Parties and the £150 Rule

Another useful exemption at this time of year is the annual events exemption which allows up to £150 per head for parties or similar events where all employees are invited to be provided as an exempt benefit.

Breach the limit, and the whole cost becomes taxable, not just the excess. This is also an annual limit so care needs to be taken if multiple events are help throughout the years.

A little planning goes a long way to make sure your festive generosity doesn’t come with a tax headache so if you would like specific advice on the gifts you are going to provide, please get in touch with your usual Larking Gowen contact.

You can find contact details on the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Tessa Brown