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:
- The cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person). If the cost of a gift, including VAT, exceeds £50, then the full value of the gift is taxable under the usual benefits rules
- The benefit is not cash or a cash voucher
- The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).
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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