Festive Giving: A Guide to Tax-Efficient Gifts for 2025

As we approach the end of another busy year, many business owners begin to consider how to express gratitude to their staff, show appreciation to loyal clients, or even reward themselves for a year of hard work. Whether you’re operating a limited company, an LLP, a sole trader, or a partnership, showing generosity at Christmas is a commendable gesture. However, it can also be an area where tax regulations create confusion.

Every December, we receive the same question:

“How can I give Christmas gifts or bonuses in a tax-efficient manner?”

Numerous myths persist about trivial benefits, client gifts, annual parties, and bonuses. To help you plan confidently, we’ve summarised the key rules for the 2025/26 tax year so you can stay compliant while making the most of the festive season.

Can I give gifts or bonuses at Christmas?

Yes, the tax treatment depends entirely on what you give, who you give it to, and how much you spend. Below, we discuss the most common scenarios that we advise clients on at this time of year.

Gifts for clients or customers

Many businesses choose to send hampers, bottles, or small gifts to clients at Christmas. While the intention is commendable, the tax rules are often misunderstood.

VAT on client gifts

  • VAT cannot be reclaimed on gifts of food, drink, or other consumables.
  • VAT may be reclaimed on non-consumable gifts, but only if:
    • The cost does not exceed £50 per recipient per tax year.
    • The gift carries a clear business message or branding.

Corporation tax deduction

In most instances, the cost of client gifts, particularly food and drink, is not tax-deductible. This means your company is still liable for corporation tax as though the expense never existed.

For the 2025/26 tax year, rates remain:

  • 19% small profits rate (for profits under £50,000)
  • 25% main rate (for profits over £250,000)
  • Marginal relief for profits in between.

Example:

A company spends £1,000 on festive food hampers for clients.

  • No tax deduction is available.
  • Corporation Tax is still payable at the company’s usual rate.

For directors of limited companies, purchasing gifts through the business may still be more efficient than taking additional dividends, but the cost remains non-deductible.

 

Gifts and Bonuses for Staff

This area has significant implications, and many employers unintentionally fall into costly traps.

 

Cash bonuses

A cash bonus, whether annual or one-off, is always treated as normal salary.

  • PAYE applies.
  • Employee and employer National Insurance contributions apply.
  • Auto-enrolment pension contributions may apply.

If you plan to give a Christmas bonus, it must be processed through payroll.

 

The “£50 Gift Rule”: Trivial Benefits

The trivial benefits rules allow genuine small gifts to be given tax-free, but only when strict conditions are met.

A gift qualifies as a trivial benefit if:

  • It costs £50 or less (including VAT and delivery).
  • It is not cash or a cash-convertible voucher.
  • It is not a reward for work done or performance.
  • It is genuinely a goodwill gesture (e.g., a Christmas treat).

If the cost is £50.01, the entire amount becomes taxable, not just the excess.

Directors’ Trivial Benefit Allowance

Directors of close companies have an annual cap of:

  • £300 per tax year,
  • across multiple qualifying gifts (none over £50),
  • excluding any cash-like vouchers.

 

Food, Drink, and Hampers for Staff

These can qualify as trivial benefits, provided each gift meets the £50 rule.

Examples:

  • A £40 hamper → tax-free.
  • A £55 hamper → fully taxable as a Benefit in Kind + 13.8% employer Class 1A National Insurance contributions.

 

Christmas Parties and Staff Events

HMRC’s regulations for annual events remain unchanged, but they must be followed carefully.

1. The £150 per person annual event allowance.

This is not an allowance; it is a combined annual events limit.

If your total event cost exceeds £150 per head, the entire amount becomes taxable.

The limit includes:

  • Food and drink,
  • Entertainment,
  • Transport,
  • Accommodation,
  • Guests, if invited.

2. The event must be open to all staff or all staff at a specific location.

3. Virtual events still qualify

  • If you can reliably allocate costs per attendee.

4. If the limit is exceeded

  • Employees must pay tax on the benefit,
  • The employer pays 13.8% Class 1A National Insurance contributions.

 

Cost-Effective Ways to Thank Your Team

Not every gesture needs to be monetary. Many businesses this year are opting for meaningful, low-cost ways to recognise their employees, such as:

  • A half-day early finish in December,
  • Time off for school plays or family commitments,
  • A voluntary team charity day,
  • A compliant trivial benefit gift under £50,
  • A staff event within the £150 annual limit.

Often, flexibility and recognition carry more weight than a financial reward, especially during a busy period.

 

Final Tip: Keep Your Accountant or Payroll Team Informed 

Whatever you decide to offer, bonuses, vouchers, hampers, or events, ensure your accountant or payroll administrator is informed in advance. Correct reporting, particularly for benefits in kind, helps avoid unexpected tax liabilities later in the year.

 

Need Help with Festive Gifts, Benefits, or Payroll?

If you’re uncertain about how to thank your team best this Christmas or want to ensure compliance, do not hesitate to reach out for assistance.

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