Expert Opinion: How much can I spend on an employee’s Christmas gift?

At this time of year, many employers would like to reward their staff with a gift and often ask “How much can I spend on my employees at Christmas?”

Stockport accountants and business advisors, Hallidays, provide some insight into what the rules are when it comes to employee Christmas gifts.

Some employers may wish to give a small gift to their employees. As long as the employer meets the relevant conditions and does not spend too much, no tax charge will arise on the employee.

Are employee Christmas gifts tax exempt?

A tax exemption is available which should help employers ensure that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt, it must satisfy the following conditions:

• The cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees)
• The benefit is not cash or a cash voucher
• The employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice)
• The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
• Where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

If any of these conditions are not met, then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.

What is the most I can spend on an employee Christmas gift?

One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. HMRC examples consider various gifts including turkeys, bottles of wine and gift vouchers.

If you are in any doubt about whether a Christmas gift for an employee is covered by the tax exemption, HMRC’s manual contains more details or speak with your accountant.