Christmas gifts for staff and clients: tax and VAT rules

Christmas gifts to staff are usually tax-free if each one costs £50 or less and is not cash. Gifts to clients are a different matter: they are not deductible for tax unless they are branded, cost £50 or less per person and are not food, drink, tobacco or vouchers. VAT has its own £50 test. Here is how each rule works.

Are Christmas gifts to staff taxable?

A gift to an employee is tax-free if it meets the four conditions for a trivial benefit on GOV.UK:

• it cost you £50 or less to provide
• it is not cash or a cash voucher
• it is not a reward for the employee’s work or performance
• it is not in their contract, including under salary sacrifice

A qualifying gift carries no tax or National Insurance and does not need reporting to HMRC. A turkey, a bottle of wine, a hamper or a non-cash gift card can all qualify. Our full guide to trivial benefits covers the rules in detail.

How does HMRC measure the £50?

The £50 is the cost to you per employee, including VAT. Where you buy in bulk, you can use the average cost per head. HMRC’s EIM21865 gives these Christmas examples.

If one gift costs more than £50, the whole cost is taxable, not just the excess.

What about gifts to directors?

Directors of a close company can receive no more than £300 of trivial benefits in a tax year. A close company is broadly one controlled by five or fewer shareholders, which covers most family and owner-managed companies. The £300 includes gifts to the director’s family or household.

What if a staff gift is not exempt?

You report it on the employee’s form P11D and pay Class 1A National Insurance, or cover it with a PAYE Settlement Agreement. GOV.UK lists small gifts and vouchers as items a PSA can include. See PAYE Settlement Agreements and benefits in kind and the P11D.

A cash gift is never a trivial benefit. Treat it as pay and put it through payroll.

Can the business deduct staff gifts?

Yes. HMRC’s BIM45074 says the cost of gifts to employees is deductible from trading profits. The one exception is where the staff gifts are incidental to gifts for other people, such as a single order of hampers sent mostly to clients.

Are gifts to clients tax-deductible?

Usually not. HMRC’s BIM45065 says “Business gifts are not allowed as a deduction against profits.” The same rule applies to sole traders, partnerships and companies.

The main exception is in BIM45070. A client gift is deductible only if all of these apply:

1. It carries a conspicuous advertisement for your business on the gift itself, not just the wrapping.
2. It is not food, drink, tobacco or a voucher exchangeable for goods.
3. Your gifts to that person total £50 or less in the accounting period (the tax year for sole traders).

A branded diary, mug or umbrella can qualify. A hamper, a bottle of champagne or a box of chocolates cannot, even with your logo on it.

Gifts to charities are a separate exception and are deductible under BIM45065. Discounts or items given as part of a sale are not gifts at all.

How does VAT apply to Christmas gifts?

VAT asks a different question: whether you must charge output tax on goods you give away. VAT Notice 700/7, updated 25 June 2026, says:

• gifts of goods to the same person costing £50 or less, excluding VAT, in any 12-month period need no output tax
• if the total goes over £50 and you reclaimed the input VAT, you account for output tax on the total cost of all the gifts to that person
• gifts of services are not taxable supplies
• genuine free samples are outside VAT

The rule covers staff gifts too; the notice lists long service and retirement gifts as business gifts. Our guide to reclaiming VAT on business expenses explains input tax.

Which applies to you?

• If you give each employee a £40 hamper: no tax, no reporting, deductible for the business.
• If you give staff £100 in cash: it is pay, so run it through payroll.
• If you give a client a £30 bottle of wine: not deductible; no output VAT if your gifts to them are £50 or less.
• If you give a client a £20 branded notebook: deductible, and no output VAT.
• If you send a client £80 of gifts: not deductible, and output VAT is due on £80 if you reclaimed the input tax.

What to do now

1. Set a per-head budget of £50 or less, including VAT, for staff gifts.
2. Keep a running total for each director of a close company against the £300 cap.
3. List client gifts by recipient so you can test the £50 limits.
4. Post client gifts to a disallowable expenses code in your bookkeeping.

Frequently asked questions

Can I give staff a Christmas gift tax-free?

Yes, if it costs £50 or less per person, is not cash or a cash voucher, and is not a reward for their work or part of their contract.

Is a gift card a trivial benefit?

A non-cash gift card costing £50 or less can be. If you top it up, HMRC adds the loads together, so a £10 card topped up seven times counts as one £80 benefit.

Are client Christmas hampers tax-deductible?

No. Food and drink are excluded from the advertising gift exception, so a hamper is not deductible even if it carries your logo.

Do I have to charge VAT on gifts to clients?

Only if your gifts of goods to that person cost more than £50, excluding VAT, in a 12-month period and you reclaimed the input VAT.

Can a company director get a tax-free Christmas gift?

Yes, within the trivial benefits rules. A director of a close company is limited to £300 of trivial benefits in a tax year.