Running a business in today’s environment takes constant focus. Whether you operate as a limited company, LLP, sole trader, or partnership, the demands of managing clients, cash flow, and compliance rarely slow down.

As the festive season approaches, many business owners naturally look for ways to reward their team, and often themselves, for another year of hard work. December is also the time when we receive one of the most frequent questions of the year:

“What’s the most tax-efficient way to give Christmas gifts or bonuses?”

While the rules around gifts, benefits, and staff events are well established, confusion persists. In this festive guide, we’ll unwrap the key HMRC guidance for the 2025/26 tax year, spotlighting clever planning opportunities (and festive pitfalls to avoid) so you can reward your team without an unwanted visit from the taxman.

Can I Give Gifts or Bonuses at Christmas?

Absolutely, the tax treatment depends on what you give, who receives it, and how much it costs. The devil is in the details, and even minor mistakes can transform a generous gesture into an unwelcome tax surprise.

Gifts for Clients and Customers

Festive hampers, wine, and food gifts remain popular, but the tax treatment is often misunderstood.

VAT on Client Gifts

• VAT cannot be reclaimed on gifts of food, drink, or other consumable items.
• VAT may only be recoverable on non-consumable gifts where the total cost per recipient does not exceed £50 in any 12-month period.

Corporation Tax Treatment

In most cases, client gifts, particularly food and drink, are not deductible for corporation tax purposes. This means the business pays corporation tax as though the expense had not occurred.

For the 2025/26 tax year:

• The small profits rate stays at 19% (profits up to £50,000)
• The main rate is still at 25% (profits over £250,000), with marginal relief in between

While buying gifts through your business may still be smarter than dipping into your own pocket, knowing the tax implications upfront is key to avoiding unpleasant surprises in the New Year.

Gifts and Bonuses for Staff

This is where things often get muddled, especially when it comes to cash bonuses and the infamous £50 “tax-free” gift rule.

Christmas Bonuses

A cash bonus is always treated as earnings.

This means:

• PAYE income tax applies
• Employee and employer National Insurance applies
• Pension contributions may also apply where relevant

There is no tax-free threshold for cash bonuses, regardless of size or frequency.

Trivial Benefits: The £50 Rule Explained

Non-cash gifts can qualify as a ‘trivial benefit’ make sure you tick all HMRC’s boxes.

To qualify:

• The cost must not exceed £50 per employee (including VAT and delivery)
• It must not be cash or a cash-convertible voucher
• It must not be a reward for performance or contractual entitlement
• It must be a genuine gesture, such as a seasonal gift

If your gift exceeds the £50 limit, even by a penny, the whole amount becomes taxable, not just the excess.

Directors and Trivial Benefits

For directors of close companies, trivial benefits are capped at:

• £300 per tax year,
• spread across multiple qualifying gifts,
• with no single gift exceeding £50.

Slip up here, and the result could be an unwelcome benefit-in-kind charge, not quite the Christmas present you wanted!

Food and Drink Gifts for Staff

Food and drink can qualify as a trivial benefit where the conditions are met.

For example:

• A £40 Christmas hamper may be tax-free
• A £55 hamper becomes fully taxable, with Class 1A National Insurance due

The £50 limit applies per gift, per employee.

Christmas Parties and Staff Events

HMRC still lets you throw a tax-free annual staff event, as ever, the rules are strict and worth knowing before you pop the corks.

Key points to remember:

• The £150 limit applies per person and includes guests
• It covers all annual events combined, not per event
• Food, drink, entertainment, travel, and accommodation all count
• If the limit is exceeded, the full cost becomes taxable

Events must be open to all staff (or all staff at a specific location), and virtual events can still qualify where costs are identifiable per attendee.

Saying Thank You Without Increasing the Tax Bill

Not all rewards need to be financial. Many businesses choose alternatives that are meaningful without creating tax complexity, such as:

• Flexible working or early finishes during December
• Time off for family or school commitments
• Team volunteering initiatives
• Modest, compliant seasonal gifts
• A carefully planned annual staff event

Often, a heartfelt thank-you or a small extra flexibility is just as meaningful as a cash bonus and far less likely to trigger a tax headache.

A Final Word on Reporting

Whatever you decide this Christmas, gifts, bonuses or the annual party, make sure your accountant or payroll provider is in the loop. Accurate reporting now means no nasty surprises from HMRC further down the line.