Business Accounting, part of the Cowgill Holloway Group

Q. Can I give my employees a tax-free Christmas gift?

A. Many employers choose Christmas to reward employees for their hard work and commitment over the past year by giving them Christmas gifts (benefits) in the form of non-cash items.

However, unless handled correctly the gifts may give rise to Income Tax and National Insurance contribution liabilities for the employee, which is clearly not the consequence the employer wanted.

However, it you know the HMRC rules and stick to them there’s no reason you can’t give your employees a tax-free Christmas present.

Small gifts to employees are classified by HMRC as ‘Trivial Benefits‘. In order to meet the criteria to be considered a Trivial Benefit, the gift must cost £50 or less to provide. It must not be cash or a voucher which can be exchanged for cash. It must not be a reward for their work or performance and it mustn’t be part of the terms of the employee’s contract.

So if you’re thinking about giving your employees a Christmas gift of a bottle of wine or box of chocolates, a gift voucher or even a turkey, for example, HMRC will not seek to tax these small gifts.

If you don’t meet the criteria, the gift will not be considered a Trivial Benefit and will be taxable. Taxable benefits need to be declared on a P11d once a year as a Benefit in Kind. The employee will have to pay income tax on the cash value of the benefit and the employer will have to pay Employers National Insurance.