Christmas is Here – When Are Employee Gifts Taxable? Can Companies Save Money on Parties?
- TBA
- Dec 19, 2025
- 5 min read
Are you ready for Christmas yet?
The annual workplace Christmas party is the equivalent of an 'annual meeting'. For employers, it is a good opportunity to reward employees, enhance team cohesion, and express gratitude.
However, if handled incorrectly, this goodwill can bring unexpected tax burdens to both employees and the company.
To help everyone enjoy the festive season with peace of mind, today we will quickly go through the key points regarding employee benefits during Christmas, allowing you to convey your festive greetings while avoiding unnecessary tax troubles.
Employee gifts – Correct use of trivial benefits
Many companies organise a 'Secret Santa' activity before the Christmas party, asking everyone to prepare small gifts worth no more than £50. This is not only for fairness but also because gifts under £50 meet the UK 'trivial benefits' tax-exemption conditions.
The specific conditions for 'trivial benefits' include:
The cost of the gift (including VAT) does not exceed £50 per person
The gift cannot be cash or a cash-exchangeable voucher
The gift is not a contractual entitlement and cannot be used as remuneration or a reward for the employee's work
For directors, executives, and their families, the total value of tax-free gifts received through trivial benefits is capped at £300 per tax year
Physical gifts or non-cash vouchers, such as a turkey, a bottle of ordinary wine, a box of chocolates, or a small hamper, can be tax-free as long as the cost is within £50 and meets the conditions above.
It is important to note that if the cost exceeds £50, the entire gift becomes taxable, not just the excess amount.
Furthermore, if the Christmas cash gift received by an employee comes not from the company but from a third party (such as a client, supplier, or partner), and the cost does not exceed £250, it is usually not subject to tax.
For example: A is an employee of a consulting firm. Every Christmas, one of his long-term clients gives him a cash gift of £100 to express gratitude. Because A reasonably expects to receive this every year, this cash gift does not need to be taxed. If the client gave £300 in a lump sum, exceeding the HMRC limit, the excess part would need to be declared for tax.
Employee gatherings – annual event exemption
Once the gifts are ready, companies usually host a gathering or party a week before Christmas.
According to HMRC regulations, employee annual gatherings can be tax-exempt provided they meet the following conditions:
Annual event: The gathering must be a routine annual event, not a one-off celebration or anniversary event
Open to all: The event must be open to all employees. If a company has multiple offices, they can hold separate events, or separate them by department, but it must be ensured that every employee has the chance to attend at least one
Per capita cost control: Including food, venue, transport, accommodation, and VAT, the cost per head must not exceed £150 per year
If the cost is exactly £150 or more - even by just 1 penny - the entire expense will lose its tax-exempt status, and tax must be declared for all attending employees.
If a business still wishes to host a high-budget gathering, the company can pay the tax on behalf of the employees through a PAYE Settlement Agreement (PSA) to avoid employees receiving a tax bill.
For companies that operate mainly with distributed teams or remote working, even if the Christmas activity is conducted online via Zoom or other platforms, as long as it meets the conditions of being an annual event, open to all, and within cost controls, it can still enjoy the annual gathering exemption. This applies to sending gift benefits as well.
For example, if a company sends each employee a hamper or voucher worth £50 and then holds an online event, with a total cost per head of £100, this falls within the £150 exemption range, making it both compliant and tax-free.
Client entertainment – no exemption for business gifts
When businesses give gifts to employees or organise events during Christmas, they can apply for tax exemption in many cases. However, if they host events or give gifts to clients, these usually cannot be deducted from business profits.
In situations involving both employees and clients, the costs need to be split in a reasonable manner.
Free product samples are fully tax-deductible. If what is given away are samples normally produced by the company or free trial items used to promote products, these costs can be fully deducted as business expenses.
'Small gifts' carrying company advertising can be deducted, but there is a monetary cap. For example, mugs, notebooks, desk calendars, or eco-bags bearing a logo – as long as they are clearly for corporate promotional purposes – are usually deductible, but each recipient can only account for up to £50 per year. Food, drink, tobacco, and vouchers are not included in this.
Sending Christmas cards to clients or potential clients counts as a business expense. The premise is that the card must carry company information or advertising, rather than being a purely personal greeting.
Finally, if the company gives out gifts that would make employees 'liable for tax' (such as gift cards), this can be handled using a Taxed Award Scheme (TAS). This means the company settles the tax and National Insurance contributions on this portion as a lump sum on behalf of the employee, so the employee does not have to pay extra tax or NICs on the gift.
VAT – can it be reclaimed?
In the UK, for 'staff entertainment' activities organized by businesses for employees, such as dinners or team building, the relevant Value Added Tax (VAT) can generally be reclaimed.
However, if the business is treating clients to meals, watching football matches, or having afternoon tea (classed as 'client entertainment'), the VAT on these activities cannot be reclaimed.
Additionally, if the only attendees at an activity are directors, partners, or the sole trader themselves, with no other ordinary employees participating, such an activity is typically not viewed as an employee benefit, and therefore the VAT cannot be recovered.
However, if these persons in charge attend the same event alongside other employees, it can be treated as a staff event, allowing for the normal recovery of VAT.
Whether it is gifts, parties, or client liaison activities, expenses during Christmas are indeed significant. However, as long as companies plan reasonably and comply with HMRC rules, they can express festive care and improve employee satisfaction while legally avoiding tax and reducing extra costs.
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