Gift Giving Rules and Advice for Businesses

Everything you need to know about gift giving rules, Cash bonuses and Christmas parties.

There’s nothing like showing your team, big or small, your gratitude as their employer at Christmas. The last few years have been tough, and knowing they’re appreciated can go a long way. But if you’re thinking of hosting a Christmas party, or giving your employees a gift, there are some rules about what’s allowable for tax. You’ll need to take National Insurance and reporting obligations into consideration.  

What are the Gift Giving Rules for Employers?  

employer gifting a staff member - gift giving rules for employers

Employers are allowed to gift employees in certain ways. Material goods given as gifts to employees are classed as ‘trivial benefits’, and therefor have specific conditions:  

  • Costs less than £50 to provide (per year)  
  • Cash or Cash vouchers are not included 
  • Does not count as a reward for work or performance  
  • Isn’t included as a term of the employee’s contract 

So long as the gift meets these criteria, you do not need to pay tax, NI or notify HMRC. However, if the gift is not classed as a trivial benefit, it will need to be reported in your accounts as the whole benefit will be taxed, not just the excess.

However, if these criteria are met, you can recover the VAT on gifts to directors, up to five shareholders, and employees.  

What about gifts for customers, suppliers, and subcontractors?  

business owner pacakaging a gift for supplier - gift giving rules for supplier and sub contractors

The rules for giving gifts to customers, suppliers, or subcontractors are slightly stricter in that they must: 

  • Cost less than £50 (including VAT) per gift (per year)  
  • Include an obvious advert for your company (such as a logo, or contact information.) 
  • Cannot include food, alcohol, or tobacco.  

This is where some companies get caught out – as you’ll see a rise in advertised ‘Gift Hampers’ which include alcohol and food, and therefore are not deductible against profits – even if they cost you less than fifty pounds each to purchase.  

What are the rules for throwing a party for my Employees? 

Christmas party rules for employers

Hosting an annual party, as an anniversary or for Christmas, is a great team-building and networking opportunity for your employees. And fun, obviously! But, just like with gift-giving or cash bonuses, there are rules to keep your party tax allowable.  

HMRC’s allowance for staff entertainment is up to £150 per employee – this can be used for an in-person or virtual event, and must be available to all staff to attend. The VAT is reclaimable, and tax-deductible for employees only – business owners, directors, clients, and employee partners do not count. If you exceed the £150, the whole amount is taxable so make sure it covers:  

  • All entertainment costs (aka, food, drinks, and extras where provided)  
  • Transport and accommodation where appropriate  

Equally, your party only qualifies if it is hosted annually. As with the gifts, this budget is per year, and exceeding it will incur tax. If you’re worried about valuing the event so that it’s tax allowable, contact us here.  

What are the rules for offering Cash Bonuses to Employees?  

Gift giving rules for employees and the rules for cash bonuses

Whether it is at Christmas, or any other occasion, a cash bonus is viewed as earnings by HMRC and will impact the value of the employee’s earnings as a PAYE tax, and Class 1 National Insurance through payroll. Equally, cash bonuses to subcontractors are treated as income and will be taxed.  

If your employees earn between £50,270 and £100,000, their bonus will be taxed at 40%, or 20% for those earning less than £50,270 per annum, with 12% as a National Insurance contribution. However, there is a ‘Bonus Sacrifice’ scheme which allows you to accept the bonus into your pension rather than as cash, which is tax-free and NIC-free.

gift giving rules , cash bonuses and party throwing for employers and business - banner

If you’d like to know more about gifting employees, contact us – we’re a Maidstone based Chartered Accountants Firm with a friendly team and plenty of experience.

We can help you celebrate your staff tax efficiently.