A Christmas gift to an employee is tax free under the trivial benefits exemption if it costs £50 or less, is not cash or a cash voucher, is not a reward for their work and is not in their contract; directors of close companies can receive no more than £300 of trivial benefits in a tax year. Gifts to clients are not deductible for Income Tax or Corporation Tax unless they carry a conspicuous advertisement for the business, cost no more than £50 per recipient in the period and are not food, drink, tobacco or vouchers. For VAT, business gifts of goods costing no more than £50, excluding VAT, to the same person in any 12 month period need no output tax.
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Are Christmas gifts to employees taxable?
Not if they meet the trivial benefits exemption in section 323A of the Income Tax (Earnings and Pensions) Act 2003, which applies to benefits provided from 6 April 2016. gov.uk says all four of these conditions must apply:
- it cost you £50 or less to provide
- it is not cash or a cash voucher
- it is not a reward for the employee’s work or performance
- it is not in the terms of their contract
A bottle of wine, a box of chocolates or a turkey given to every member of staff at Christmas will usually fit. HMRC’s manual at EIM21864 says the exemption applies equally to benefits provided to a member of the employee’s family or household. A trivial benefit provided through a salary sacrifice arrangement is not exempt. Our main page on the trivial benefits exemption covers birthdays and other occasions; this page deals with Christmas.
What happens if a staff gift costs more than £50?
The whole gift becomes taxable. EIM21865 says that if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50. The cost is measured including VAT.
Two HMRC examples are useful at Christmas. Where an employer buys turkeys for 100 employees for £4,500 in total, HMRC accepts an average cost of £45 per head, so the exemption can apply even if some birds cost more than others. Where an employer gives a gift card costing £10 and then tops it up seven times with £10 each, HMRC treats it as a single benefit costing £80, which is not exempt. Splitting one gift into instalments does not keep it under the limit.
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How does the £300 cap work for company directors?
Where the employer is a close company, which gov.uk describes as a limited company run by five or fewer shareholders, trivial benefits to a director or other office holder are capped at a total cost of £300 in the tax year. Each gift must still cost £50 or less. The cap also covers gifts to members of the director’s family or household. If a family member is an employee of the company in their own right, the government’s policy paper says they have their own £300 cap.
The cap runs by tax year, 6 April to 5 April, so a Christmas gift counts towards the same year as gifts given the following March.
Can you give staff cash or gift vouchers at Christmas?
Cash and cash vouchers fail the trivial benefits test, and EIM21864 says a benefit that fails any condition is taxed in the normal way. Gift cards and vouchers bought for staff can only be trivial benefits if they cost £50 or less and are not cash vouchers, and HMRC’s top up example shows how quickly a card can go over the limit. Our page on gift vouchers and cash gifts to staff sets out the payroll treatment.
If you want to give staff something that is not exempt without them paying tax on it, a PAYE Settlement Agreement can cover minor items. gov.uk lists small gifts and vouchers as examples, but says cash payments, including bonuses, cannot be included. See our PAYE Settlement Agreements page. HMRC can check payroll and benefits in a compliance check, and the accountant’s fees for dealing with it can be insured through tax investigation insurance.
Can a business claim tax relief on gifts to clients?
Only in narrow cases. HMRC’s Business Income Manual at BIM45065 says business gifts are not allowed as a deduction against profits, and that the legislation treats them in the same way as business entertaining. The rules are in section 45 of the Income Tax (Trading and Other Income) Act 2005 and section 1298 of the Corporation Tax Act 2009.
BIM45070 sets out the small gifts exception in section 47 of that Act and section 1300 of the Corporation Tax Act 2009. A gift carrying a conspicuous advertisement for the business is generally allowed, but not if:
- it is food, drink, tobacco or a token or voucher exchangeable for goods, or
- its cost, together with other gifts to the same recipient in the period, exceeds £50.
The period is the tax year for sole traders and partnerships and the accounting period for companies. So a branded diary or calendar can be deductible, while a Christmas hamper or a case of wine for a client is not, however modest. gov.uk’s guidance for the self employed adds that you can claim the cost of products you normally sell that you give away to advertise the business. Client hospitality, such as a Christmas lunch, is covered on our business entertainment and client gifts page.
Gifts to your own staff are treated differently. BIM45065 lists gifts to the trader’s employees as an exception, so long as they are not incidental to gifts to other people, which means the cost of staff Christmas presents is normally deductible.
How does VAT work on Christmas gifts?
When you give away goods on which you reclaimed VAT, VAT Notice 700/7 says you normally have to account for output tax on their cost, unless they qualify as business gifts. You need not account for VAT if the gifts to the same person do not exceed £50, excluding VAT, in any 12 month period. You may use any 12 month period that includes the day the gift is made. If the total goes over £50, you must normally account for output tax on the total cost of all the gifts, not just the excess. Free samples that meet HMRC’s definition are not liable to VAT. Our page on VAT on business gifts and samples goes into more detail.
Taking a client out for a Christmas meal is not a gift. VAT Notice 700/65 defines entertainment as hospitality of any kind and says you cannot recover input tax on business entertainment. See VAT on business entertainment.
Which rules apply to which Christmas gift?
| Gift | Employee tax | Business deduction | VAT |
|---|---|---|---|
| Staff gift costing £50 or less, not cash | Exempt as a trivial benefit | Usually allowed | No output tax if within £50 excluding VAT in 12 months |
| Staff gift costing over £50 | Full cost taxable | Usually allowed | Output tax on total cost if over £50 |
| Cash or cash voucher to staff | Taxed in the normal way | Usually allowed | Not a business gift of goods |
| Branded item to a client, £50 or less a year | Not applicable | Allowed | No output tax if within £50 |
| Food, drink or hamper to a client | Not applicable | Not allowed | No output tax if within £50 |
Directors of close companies are also limited to £300 of trivial benefits in the tax year.
How do the rules combine in a typical December?
Illustration only. Marsh Road Ltd, a VAT registered company with a 31 March year end, gives each of its 12 employees a hamper costing £45 including VAT. It gives its sole director the same hamper, her fifth £45 gift of goods from the company this tax year, bringing her total to £225, inside the £300 cap. Every hamper is a trivial benefit, so nobody pays Income Tax on them. The VAT position differs: each employee’s single hamper is well under £50 excluding VAT, but the director’s gifts now exceed £50 excluding VAT in 12 months, so the company should account for output tax on their total cost if it reclaimed the VAT on them. The company also sends 40 clients a branded desk calendar costing £12 each and a £30 bottle of champagne to its largest client. The calendars are deductible for Corporation Tax; the champagne is not, because it is drink. Neither gift takes any client over £50 in 12 months, so no output tax is due on either.
Frequently asked questions
Is the staff Christmas party a trivial benefit?
No. It is dealt with by the separate annual function exemption in section 264 of the Income Tax (Earnings and Pensions) Act 2003, with its own £150 per head limit. See our page on the staff Christmas party tax exemption.
Can a director take six £50 gifts in a year?
Yes, if the company is a close company and each gift meets all four conditions, six gifts at £50 reach exactly the £300 cap. A seventh would not be exempt.
Is a Christmas hamper for a client tax deductible?
No. Food and drink are excluded from the small gifts exception even when the hamper is branded, so the cost is disallowed for Income Tax or Corporation Tax.
Does a thank you gift for a good year count as trivial?
Not if it is given in recognition of particular services or performance. A gift given to everyone at Christmas is different from one given because an employee hit a target.
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Sources
- GOV.UK: Expenses and benefits trivial benefits
- GOV.UK: manual page EIM21864
- GOV.UK: manual page EIM21865
- GOV.UK: Income tax statutory exemption for trivial benefits in kind
- GOV.UK: Whats included
- GOV.UK: manual page BIM45065
- GOV.UK: manual page BIM45070
- GOV.UK: Marketing entertainment subscriptions
- GOV.UK: Business promotions and vat notice 7007
- GOV.UK: manual page VATSC03322
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 November 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.