Gifts for Employees and Clients: A Guide for UK Businesses

Many businesses consider giving gifts to employees and clients as a gesture of appreciation. While this can strengthen relationships and boost morale, it’s essential to understand the tax implications of such gifts. Here’s a comprehensive guide for UK businesses to navigate the rules around gifting.

Gifts for Employees

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.

Gifts for Clients

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.

VAT Considerations

• 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.

Final Thoughts

Gift-giving can be a thoughtful way to show appreciation during the holiday season. By understanding HMRC’s rules, you can ensure your generosity doesn’t come with unexpected tax liabilities.

Need further guidance? At Munro Bowman, we’re here to help you navigate the complexities of tax planning and compliance. Get in touch today to ensure your gifting strategy aligns with HMRC’s guidelines.