The Christmas gift allowance: how it works

If you are planning on treating staff this Christmas, here’s a brief guide to the tax rules for the 2021/22 financial year.

Do gifts count as taxable income?

Christmas presents paid in cash to staff qualify as taxable earnings, which means they will be subject to income tax and national insurance contributions (NICs). The same rules apply to vouchers exchangeable for cash.

Taxable gifts must be reported on the employee’s form P11D.

Tax-free gifts

Seasonal gifts – such as Christmas presents – may be given tax-free, providing they meet the exemption criteria:

Is there a tax-free gift limit?

Apart from the £50 per employee limit, there is no annual cap on trivial gifts that can be made to an individual employee during the year.

The only exception is where the company is considered “close” – such as a family business that is owned and controlled by five or fewer participators. Where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household), the exemption is capped at a total cost of £300 in the tax year.

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