Tax Treatment of Gifts: What Small Businesses Need to Know This Christmas

With Christmas just around the corner, it’s time to show appreciation to the people who’ve made your year a success—your hardworking team and loyal clients.

Gifts are a great way to spread festive cheer, but understanding the tax rules can help you stay compliant and avoid surprises. Check out our straightforward guide to tax-smart festive gifting and make the most of the season.

When gifting your employees, a little planning can go a long way in avoiding unexpected tax issues. Here’s what you need to know:

1. VAT
• Gifts are VAT reclaimable, provided they’re not part of a salary sacrifice arrangement.
• If a third party (like a supplier) gifts your employees, no VAT applies as long as the total annual value stays under £250.
2. Corporation Tax
• Gifts are deductible if they’re wholly and exclusively for business purposes. However, extravagant gifts might attract HMRC’s attention, so keep it reasonable.
3. Benefit in Kind (BIK)
• Non-cash gifts worth £50 or less are exempt from tax and National Insurance Contributions (NICs) under HMRC’s trivial benefits rule.
• If the gift exceeds £50 or doesn’t meet the trivial benefit criteria, it may be taxed as a BIK, potentially costing your employees.

Pro Tip: Stick to thoughtful, non-cash gifts under £50 to keep things simple and tax-free for everyone.

Client gifting is another fantastic way to show appreciation, but it comes with its own set of rules:

1. VAT
• You can reclaim VAT on gifts worth £50 or less per recipient each year. However, if the value exceeds this limit, VAT becomes payable on the total value.
2. Corporation Tax
• Gifts are deductible only if they’re promotional items that carry your branding, cost less than £50, and aren’t food, drink, or vouchers.
3. No Benefit in Kind
• Gifts to clients aren’t treated as a benefit in kind—unless the client also happens to be an employee.

Watch Out: Planning to send wine, chocolates, or hampers to clients? While thoughtful, these gifts aren’t tax-deductible. Instead, opt for branded items like notebooks or calendars to keep your gifts both practical and compliant.

When it comes to festive gifting, the golden rule is to stick to the £50 limit for VAT and trivial benefits. Keeping gifts simple, thoughtful, and within the rules helps you avoid any unexpected tax surprises.

While you’re in the holiday spirit, why not take a look at our guide to tax-smart staff parties? Published on LinkedIn, it’s packed with tips to help you host a compliant and cheerful celebration.

Wishing You a Merry Christmas and a Prosperous 2025!

As always, the RPJ Accountancy team is here to help with all your tax and financial planning needs. If you’d like tailored advice, don’t hesitate to get in touch.

From all of us at RPJ, we wish you a joyful Christmas, a relaxing holiday season, and all the best for the year ahead.