Employers’ tax rules for festive giving

Christmas is just around the corner, so it will soon be office party season and also the time when business owners look to make seasonal gifts.

But before you open the piggybank, there are a few tax rule to familiarise yourself with, to make sure you stay on the right side of HMRC.

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

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 (including VAT) and this is the allowance for the whole year, not just Christmas, so do take into account what you have spent so far. If partners, spouses or family are invited, they have their own £150 limit too. If you are inviting clients or suppliers, this cost is not deductible for Corporation Tax and you cannot claim back the VAT.

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

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.

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. Remember, from April 2026, reporting of benefits and expenses must be done in real time. Typically, trivial gifts are less than £50 and not a cash voucher.

You can arrange for a PSA (PAYE Settlement Arrangement) whereby the company settles direct with HMRC, the tax and National Insurance.

For you - the donor - the gift is non-tax deductible when gifted to suppliers or clients. 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.

Payroll Giving is a way of giving money to charity without paying tax on it. It must be paid through PAYE from someone’s wages or pension.

As an employer, you need to set up and run the scheme. The amount of tax relief given depends on the rate of tax the employee pays.

If you would like more help or advice on gifting and entertaining, or are considering outsourcing your payroll, then please get in touch with the tax team here at Optimum.

And in the meantime, have an enjoyable Christmas!