Do You Owe Tax on Christmas Presents?

Christmas is just around the corner, and you are worried about the tax on Christmas presents. The good news is that you don’t need to pay taxes on every gift you receive. That means you can unwrap happiness without worrying to tell HMRC about your new pair of earrings.

The rules are changed for the following.

– You are self-employed and receive gifts from a client.
– You are an employer gifting your staff.
– You are an employee receiving a gift from your employer.

Though Christmas gifts are not always associated with paying taxes, there are situations where you are liable to pay tax or National Insurance.

This guide explains rules and regulations for every possible scenario in which you are liable to pay tax.

Click the links to go straight to your chosen section

• What are the Christmas Tax Rules For Employers?
• The rules for employers
• Trivial Gift: What is it?
• What if the Gift is Not Like Trivial?
• Christmas tax rules for employees
• Does the Gift Type Matter?
• What if My Client Gave me a Present?
• The Tax Rules For Self-Employed
• I Want to Give My Client a Present. Will I be Taxed?

What are the Christmas Tax Rules For Employers?

The tax rules for employers

Being an employer, you want to do something heart-warming for your staff. What can be best over Christmas presents to show appreciation to your employees? This thoughtful act can help you build long-term relationships with employees and boost loyalty and work morale.

However, the thought of tax on Christmas presents increases your worries. You do not need to if the HMRC considers staff gifts trivial, but you need to account for anything outside of the trivial category.

Trivial Gift: What is it?

A trivial gift is a one-off given to directors and employees during the year. However, the value of the gifts must be less than £50 plus VAT, including delivery charges.

-It also shouldn’t be
-Cash or a voucher
-Reward given for good performance
-Be something mentioned in their contract

What if the Gift is Not Like Trivial?

If the staff gift costs more than £50, report your gift to HMRC as a benefit in kind. Your employee would have to pay tax on the benefit in kind, and the employer would have to pay National Insurance. The £50 limit won’t be an allowance or threshold.

Let us explain with an example.

If a gift costs you £65, including VAT and shipping, you must claim the total tax and NI due over £65, not just £15 above the threshold. That means you are eligible to pay tax on Christmas presents.

Tax on Christmas Presents: What Employees Should Know?

As an employee, receiving a Christmas gift from your boss is always the best way to appreciate your hard work. However, in the UK, knowing where it stands in terms of tax is mandatory. If you couldn’t claim the taxes, it would surely result in penalties and fines.

If you receive a Christmas present from an employer worth less than £50, you won’t need to declare it with HMRC. However, if the amount exceeds £50, you must pay HMRC tax.

However, you must file a self-assessment with HMRC. Your employer will issue a copy of the information to help you keep records.

Does the Gift Type Matter?

The types of Christmas gifts include hampers, floral gifts or bottles of wine. However, there’s a chance if your employer decides to gift you cash at the end of the year, like the Christmas bonus, then paying tax to HMRC on this bonus will be mandatory. This bonus amount will be mentioned on your payslip, and you will be liable to pay tax.

What if My Client Gave me a Present?

Sometimes, a client wants to give a present on Christmas to appreciate the hard work you did all year. If the value of the gift is less than £250, then you won’t need to declare it to HMRC.

Sometimes a customer or a client will want to give you a present at the year’s end to thank you for all your hard work. If this gift is less than £250, it won’t be taxable, and you won’t need to declare it to HMRC. If you receive a present worth over £250, you must report to HMRC and pay the tax.

The Tax on Christmas Presents For Self-Employed

As a self-employed person, if you receive a trivial gift from your client who wants to appreciate your efforts in providing services, you won’t need to pay tax. Instead, you can enjoy their kind gesture and feel happy about the present.

However, the bad news is that if you receive payment as compensation for your services, it will be considered taxable income. You must also declare it with HMRC when filing your tax return.

I Want to Give My Client a Present. Will I be Taxed?

Giving clients Christmas presents is considered client entertainment cost, so it won’t be an allowable expense for tax purposes. However, there are exceptions, such as if the gift is worth less than £50 and clearly shows promotional purposes, it will be tax deductible. So, any gift you want to qualify as promotional should be designed and fully branded to promote your business.

Other gifts, such as tobacco, food, drink, or vouchers, can be exchanged, but cash doesn’t qualify.