Rewarding employees with gifts can be a great way to show your gratitude. However, HMRC has specific rules regarding these gifts:

1. Trivial Benefits Exemption
   Small gifts to employees can qualify as “trivial benefits,” meaning they are not taxable. To qualify:

• The gift must cost £50 or less per employee.
• It cannot be cash or a cash voucher.
• It must not be a reward for their work or performance.
• It cannot be part of the employee’s contractual entitlement.

For example, a box of chocolates, a bottle of wine, or a gift card worth £50 or less could fall under this exemption.

2. Non-Trivial Gifts
   If the gift exceeds £50 or doesn’t meet the above criteria, it may be subject to Tax and National Insurance contributions. The value of the gift will need to be reported on a P11D form, and the employer may have to pay Class 1A National Insurance.
3. Annual Events
   Don’t forget that the annual £150 per head exemption for events, such as Christmas parties, is separate from the trivial benefits allowance. If you’re hosting an event, this can also be a way to celebrate without incurring additional tax liabilities.

Gifting clients can help nurture business relationships, but there are limits on what can be claimed as a tax-deductible expense:

1. Business-Related Gifts
   You can claim tax relief on gifts to clients if:

• The gift is not food, drink, tobacco, or a voucher.
• The gift costs £50 or less per recipient for the relevant tax period. The relevant tax period is the tax year for unincorporated businesses and the accounting period for limited companies.
• The gift prominently displays your company name or logo (e.g., branded diaries, pens, or calendars).

2. Non-Deductible Gifts
   If the gift doesn’t meet the above criteria, it won’t qualify as a tax-deductible expense. For instance, a luxury hamper or an expensive bottle of wine would not be deductible unless given as part of a promotional event.

If you’re VAT-registered, you can reclaim VAT on employee gifts, provided the total cost doesn’t exceed £50 per gift. For clients, VAT can only be reclaimed if the gift is tax-deductible.