Christmas Gifts in Business: Staff, Clients and the Tax Rules

Christmas is the season of giving……unless you’re HMRC, in which case it’s the season of giving rules about giving.

Every year, small business owners ask the same questions:

• “Can I buy staff Christmas gifts?”

• “Can I send clients a bottle of wine?”

• “Are gifts tax-deductible?”

• “What about VAT?”

• “Can my limited company buy me a present?”

So let’s unwrap the rules around festive gifting for staff, clients, suppliers, directors, sole traders, and everyone in between with zero jargon and a little Christmas cheer.

🎄 Gifting to Staff: The Happiest Category of All

HMRC is surprisingly generous here if you follow the rules, and Christmas gifts often fall under the Trivial Benefits exemption.

🎁 The Trivial Benefits Rule

A staff gift is tax-free if ALL of these are true:

• It costs £50 or less

• It’s not cash or a cash voucher

• It’s not a reward for work

• It’s not part of their contract

If all boxes tick, the gift is:

• Tax-free for the employee

• Tax-deductible for the business

• No NI to pay

• No P11D faff

  
  

🎁 Examples of allowable Christmas gifts for staff:

• Chocolates

• Wine

• Hampers

• Gift cards (as long as they cannot be exchanged for cash)

• A Christmas meal out (as long as it’s under £50 per head and not a “reward”)

• Flowers

• Small presents

🎁 Examples that are not trivial:

• Cash (always taxable)

• Cash vouchers

• Bonuses

• High-value gifts (over £50)

• Something given as a reward for hitting targets

  
  

🎅 Example

Lucy runs a small marketing agency (Ltd).She buys each staff member a £35 hamper.

✔ Under £50

✔ Not cash

✔ Not in their contract

This is a perfect Trivial Benefit and is fully allowed.

🧑‍🎄 What about gifts to directors?

Limited company directors can receive trivial benefits, including Christmas gifts, but with one extra rule:

🎁 Directors of Limited companies have an annual cap of £300 per year.

That gives plenty of room for:

• A Christmas meal

• A bottle of bubbly

• A festive gift

• A birthday treat

• A summer BBQ treat

Just remember the rule: £50 per gift, not £50 total.

❌ Directors cannot:

• Receive cash

• Receive cash vouchers

• Claim a £200 gift as “trivial” (HMRC is not that festive)

🎅 Example

Ben is the sole director of a limited company. He buys himself a £45 Christmas whisky.

✔ Trivial benefit

✔ Within £50

✔ Within £300 annual cap

✔ Fully allowed

(And no, a £499 iPad won’t count but nice try!)

🎁 Gifts to Clients: Where HMRC Puts the Baubles Away

Here’s the part no one wants to hear:

🎄 Client entertaining is never tax deductible.🎄 VAT on client entertainment cannot be reclaimed.

But gifts are allowed, with rules.

✔ A client gift is allowable if:

• It costs under £50

• It’s not food, drink, tobacco

• It’s not a voucher

• It is a business gift, not entertainment

• It features your branding (logo, company name, etc.)

  
  

🎁 Allowed examples:

• Branded diaries

• Branded mugs

• Branded calendars

• Branded pens

• Branded notebooks

❌ Not allowed as a tax-deductible client gift:

• Wine

• Chocolate

• Hampers

• Toys

• Perfume

• Flowers

These count as entertaining, not allowable gifts.

🎄 Example

Mary sends her top 20 clients a box of chocolates. Lovely gesture… But

❌ not tax deductible and

❌ no VAT reclaim.

If she sends branded mugs instead:

✔ tax deductible

✔ VAT reclaimable

🎁 Gifts to Suppliers: Similar rules to clients

Suppliers fall under the same category as clients in HMRC’s eyes.

So:

• Branded gifts under £50 = allowable

• Food, drink, or entertainment = not allowable

• Cash or vouchers = not allowable

🎁 Example

Raj gives his printing supplier a branded desk calendar.

✔ Allowable business gift

✔ VAT reclaimable

🧵 What about sole traders?

This is where the rules shift slightly.

✔ Sole traders can:

• Give trivial benefits to employees

• Give allowable branded gifts to clients/suppliers

❌ Sole traders cannot:

• Give themselves a trivial benefit

• Claim gifts they give themselves

• Deduct the cost of entertaining clients or suppliers

🎄 Example

Anna is a sole trader who buys her assistant a £40 Christmas gift.

✔ Tax deductible

✔ Allowed under trivial benefits

Anna buys herself a £40 candle:

❌ Not allowed

❌ Not deductible

❌ Not a trivial benefit

🎁VAT Rules: The Festive Fine Print

✔ You can reclaim VAT on:

• Staff gifts (including directors)

• Branded client gifts under £50

• Branded supplier gifts under £50

❌ You cannot reclaim VAT on:

• Client entertainment

• Supplier entertainment

• Gifts containing food, drink, tobacco (unless staff only)

• Non-branded client gifts

• Gifts over £50 per person per year

  
  

🎄 Extra VAT rule

If you give multiple gifts to the same person and the total exceeds £50 excluding VAT, you must:

• Block the VAT, and

• Account for output VAT on the value of the gift

Yes. HMRC charges VAT on generosity if it goes too far.

🎁Common Christmas Gifting Mistakes (and how to avoid them)

❌ Mistake 1: Giving staff cash or cash vouchers

Always taxable. No exemption.

❌ Mistake 2: Giving clients wine and claiming it

Counts as entertainment.

❌ Mistake 3: Forgetting the £50 limit is per gift, not per year

You can give several trivial benefits, as long as each one is under £50.

❌ Mistake 4: Directors assuming the £300 annual cap applies to staff

It only applies to directors of limited companies.

❌ Mistake 5: Claiming VAT on unbranded client gifts

Only branded gifts qualify.

🎄Real-World Scenarios to Keep It Simple

⭐ Scenario A: Limited company with staff. Gifts staff a £40 hamper each.

✔ Trivial benefit

✔ Tax deductible

✔ VAT reclaimable

⭐ Scenario B: Sole trader with staff. Gives staff a £30 bottle of wine.

✔ Tax deductible

❌ VAT not reclaimable (because it’s food/drink entertainment)

⭐ Scenario C: Limited company sending clients branded notebooks

✔ Allowable

✔ VAT reclaimable

⭐ Scenario D: Limited company director buys themselves a £45 Christmas gift

✔ Trivial benefit

✔ Counts toward £300 annual cap

✔ Deductible

✔ VAT reclaimable

🎁 Final Thoughts: Give Generously, But Claim Carefully

Christmas gifting can be a lovely way to thank staff, delight clients, and feel festive but the tax rules can turn generous gestures into unexpected costs if you’re not careful.

Here’s the festive summary:

🎄 Staff gifts? Usually great. Trivial Benefits are your friend

🎄 Client gifts? Fine if branded and under £50 but no food or drink

🎄 Supplier gifts? Same rules as clients

🎄 VAT? Staff-only = good, clients = mostly no

🎄 Directors? Yes, under the £50-per-gift/£300 annual limit

🎄 Sole traders? Gifts for staff only

Give joyfully — just keep HMRC’s rulebook in mind while you wrap.