Tax rules for businesses’ festive gifting

17/12/2023

It’s beginning to look a lot like Christmas, and for business owners this may also mean the time for making gifts to your staff and to your contacts, or providing entertainment.

However, it is important to remember that HMRC is ever watchful, so before you get carried away with the season of good cheer, you should familiarise yourself with the tax rules.

If you are overly generous, you may need to pay tax and National Insurance. Moreover, if you fail to declare taxable gifting-related spending, then you could also face penalties. Merry Christmas from HMRC!

If you are going ahead with an office party, you should be aware the amount you pay, tax-free, is capped.

The maximum you can spend per employee is £150 and this is the allowance for the whole year, not just Christmas, so do take into account what you have spent so far.

There are also tax rules around giving and receiving gifts, which apply all year and not just at Christmas

  • Cash bonuses: any cash you give to employees as a Christmas bonus counts as earnings, so you’ll need to add the value to your employees’ other earnings and take off tax and National Insurance through payroll.
  • Goods: it is only free to give a gift to an employee, client, or supplier if the gift is ‘trivial’ in HMRC’s eyes. If the items can’t be counted as trivial benefits, you must report them on form P11D and pay National Insurance on the value of the benefit.

For you – the donor – the gift is non-tax deductible. There are also complex rules governing gifts to a third party, such as making gifts to a supplier’s employees. If you are not sure of the rules, do seek advice before going ahead.

The rules are slightly different if you are self-employed. Here, you don’t have to report or pay tax or National Insurance on personal gifts (such as Christmas presents).

If you would like more help or advice on gifting and entertaining, then please get in touch with Michael Blaken, Accounts Director at Optimum Professional Services – and in the meantime, have an enjoyable Christmas!

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