You can unwrap your Christmas presents without having to tell HMRC about your hundredth pair of stripey socks, and you generally don’t have to worry about paying taxes on them.
The guidelines may be a little more intricate if you’re:
- Self-employed and get presents from customers.
- An employer presents gifts to employees.
- A worker is getting a present from their boss.
In certain situations, you may be responsible for paying taxes or National Insurance (NI); however, tax and Christmas presents are unrelated.
We walk you through the different rules and regulations for each scenario so you can enjoy the season of giving, knowing that you are fulfilling all the necessary tax-related requirements.
The standards for employers
Giving your employees a lovely Christmas present is one of the most kind and economical ways for you, as their company, to express your gratitude. This good act can significantly improve vital aspects like staff loyalty, motivation, and morale.
However, what are the tax ramifications of presenting Christmas gifts to employees? If the present is deemed “trivial” by HMRC, you won’t have to worry about taxes or National Insurance, but you may have to account for anything that doesn’t fall into that category.
What does a trivial gift mean?
HMRC defines a trivial gift or benefit as an annual, one-time payment to directors and staff. Its total worth must not exceed £50. Additionally, it cannot be:
- Money, or a coupon that they might use to purchase money.
- Given as a prize for excellent work.
- Within the parameters of their agreement.
What occurs if it isn’t considered trivial?
Any employee who has presented over £50 must be recorded as a benefit in kind to HMRC. As their employer, you must pay national insurance on the benefit’s value, and your employee will pay taxes on it.
The £50 cap is neither a threshold nor an allowance.
Therefore, if a present costs £65 (VAT and delivery included), you must record the entire amount; tax and NI are due on the whole £65, not just the £15 over the threshold!
The employee Christmas tax regulations
Receiving a Christmas gift from your boss as an employee is a pleasant way to cap off a year of hard work and a welcome addition to the holiday season. However, it’s crucial to understand your tax situation to prevent a less-than-flattering reprimand from HMRC.
If your company gives you less than £50 present, you are exempt from paying taxes or reporting it to HMRC. If it exceeds that, your employer must notify HMRC, and you will be responsible for paying the whole amount.
For your records, your employer will (or ought to!) provide you with a copy of the data they report. This information is required if you file a self-assessed tax return.
Does the type of gift matter?
Wine bottles, flower arrangements, and hampers are typical gifts you might receive.
Regardless of the amount, any monetary gifts your employer gives you at the end of the year, like a Christmas bonus, will be considered. Your payslip will show the amount subject to taxes and national insurance. The same rules will apply to vouchers that are redeemable for cash.
Did you know that gift vouchers can have tax implications? If a voucher’s value exceeds £50, it becomes taxable. Please remember that these vouchers cannot be exchanged for cash. So, while they make great presents, it’s good to be aware of the rules that come with them!
What would happen if a customer bought me a Christmas present?
Sometimes, at the end of the year, a client or customer will want to give you a present to say “thank you” for all of your hard work. As long as the gift is under £250, it will not be taxed, and you will not be required to record it with HMRC.
If a highly kind customer wants to give you a gift that costs more than £250, you must inform HMRC and pay the relevant tax.
The guidelines for the self-employed
As long as it’s a small gift, HMRC can decide if you work for yourself and if your clients wish to send you a Christmas present. You can enjoy the thoughtful act and know you have given customers who value you.
Gifts valued at less than £50 are considered insignificant. To pay the necessary tax and National Insurance on any gift that exceeds this amount, you must report it to HMRC on your self-assessment tax return.
What if I would like to present my client with a gift?
Giving customers Christmas presents is generally not an authorized expense, and you cannot deduct it from your tax liability because it is considered a cost similar to client entertainment expenses.
There are exceptions to this rule! Your Christmas gift may be tax-deductible for promotional purposes and valued at less than £50, including VAT and delivery. This provision does not include tobacco, food, beverages, and exchangeable certificates. To qualify as a marketing expense, the gift itself—rather than just its packaging—must be prominently branded and specifically designed for marketing purposes.
