Tax-free Christmas gifts for employees

With the Christmas season now rapidly approaching, businesses might be considering Christmas gifts to reward their employees for their hard work over the year. 

Vouchers

Unfortunately cash bonuses or vouchers are not tax free, and will have tax and National Insurance deducted through the PAYE scheme or alternatively, for vouchers the company can cover the cost of the tax and National Insurance on behalf of the employees. However, vouchers with a value below £50 that are not exchangeable for cash are an exception covered by the gifts exemption below.

Small gifts

Small gifts where the cost of providing them is below £50 per employee such as a turkey, chocolates or a bottle of ordinary wine, can be given as a gift free of any tax, but a case of fine wines or luxury hampers would be a benefit in kind and the value included upon forms P11D or a PAYE Settlement Agreement.

Office Party

For many businesses, the annual Christmas party is a chance for staff to let their hair down. The Christmas party can help to boost morale and make staff feel valued for their efforts as well as being a fully allowable tax deduction for the business.   

Ordinarily, the rule applies to a party or similar function which follows a few basic guidelines;

• The event must be made available to all staff generally, or to workers at a particular location.
• The tax free limit is annual, so employers could provide a Christmas party, or a summer barbeque (or both), providing the total cost is kept below £150.
• If the cost per head goes as much as a penny over the £150 allowance, the full amount becomes liable to tax and National insurance in both the staff and the employer calculations.

The £150 allowance covers food, drink, accommodation, and transport, and employees are able to bring their partners along who will be included within the head count.  The business will be able to reclaim VAT on staff entertaining expenditure, but not their partners/spouses and so the costs will need to be apportioned.